Stress Testing Corporate Balance Sheets in Emerging Economies

19 Pages Posted: 5 Jan 2016

See all articles by Julian T.S. Chow

Julian T.S. Chow

International Monetary Fund (IMF)

Date Written: September 2015

Abstract

In recent years, firms in emerging market countries have increased borrowing, particularly in foreign currency, owing to easy access to global capital markets, prolonged low interest rates and good investment opportunities. This paper discusses the trends in emerging market corporate debt and leverage, and illustrates how those firms are vulnerable to interest rate, exchange rate and earnings shocks. The results of a stress test show that while corporate sector risk remains moderate in most emerging economies, a combination of macroeconomic and financial shocks could significantly erode firms' ability to service debt and lead to higher debt at risk, especially in countries with high shares of foreign currency debt and low natural hedges.

Keywords: Emerging market corporate debt, leverage, debt at risk, debt, corporate debt, emerging market, market, markets, General, All Countries,

JEL Classification: -;- G30

Suggested Citation

Chow, Julian T.S., Stress Testing Corporate Balance Sheets in Emerging Economies (September 2015). IMF Working Paper No. 15/216, Available at SSRN: https://ssrn.com/abstract=2711130

Julian T.S. Chow (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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