Geopolitical risk and oil price volatility are increasing macroeconomic stress, despite the financial system currently showing a sound level of resilience.
As exposure varies across institutions and sectors, stress testing revenue, credit losses, capital and funding costs helps boards and management understand the impact of prolonged macroeconomic stress.
Applying stress testing outcomes across business planning, capital adequacy, funding and recovery planning supports better decision‑making and stronger regulatory confidence.
The RBA has stated in their March 2026 Financial Stability Review that Australia’s financial system is resilient and well placed to support households and businesses, provided lending standards remain strong as economic conditions evolve.
While they note a sound level of financial resilience, geopolitical risks and oil price volatility are key sources of macroeconomic stress expected to impact both the retail and corporate sectors. These pressures will not be felt evenly, with impact varying across institutions and sectors.
In this environment, adopting a proactive stress testing framework is a critical approach for boards and management to understand, anticipate and respond to the impact of prolonged macroeconomic stress.
As financial institutions refresh their business plans and strategies, incorporating severe but plausible macroeconomic stress scenarios will be critical. Institutions should also consider how stress testing interacts with key risk artefacts we’ve outlined below.
Business plans
These should account for potential revenue compression, higher inflation, and credit losses arising from macroeconomic stress.
The Internal Capital Adequacy Assessment Plan
This must demonstrate that capital remains adequate under sustained adverse macroeconomic conditions aligned to the institution’s risk profile and business plan.
The Recovery and Exit Plan
This should be revisited to ensure that the trigger framework is set at an appropriate level and management’s recovery actions remain credible under severe conditions.
Funding strategy and contingency funding plans These should be reviewed to consider the impact of higher funding costs arising from rising interest rates.
Credit monitoring and expected credit loss models
These may require updating to monitor impacts on loan recoverability, with particular emphasis on highly impacted sectors.
This integrated approach supports better decision‑making, clearer Board challenge and stronger regulatory confidence.
Interested in broader regulatory and risk priorities?
Taking place on 22 and 23 April, Grant Thornton’s 2026 Financial services virtual conference will bring together specialists across banking, insurance and wealth to unpack the key developments shaping the sector. Sessions will explore governance, risk management and resilience, offering practical insight into the issues financial services organisations are navigating.
We support financial institutions in strengthening overall risk management through stress testing that is more proactive, better governed and more closely connected to decision-making.
Our support includes developing tailored severe-but-plausible scenarios that reflect an institution’s risk profile and exposure to macroeconomic stress, reviewing governance and documentation to support stronger oversight, and helping boards and management clearly understand assumptions, impacts and response actions.
We also help institutions embed stress testing more effectively across business planning, capital adequacy and recovery planning, and support the ongoing maturation of stress testing capabilities from isolated exercises to a more integrated approach. Please reach out to our team of specialists today for further support.
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