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Abstract
Credit risk is the most obvious risk faced by banks by nature of their activity as financial intermediaries. Both Basel II and III accords represent a cornerstone for the risk management practices in general and credit risk in particular for the final aim of ensuring the soundness and safety of the banking sector. In this regard, credit risk is one of the variables that is directly related to banking stability. Financial sector crises since the Asian crisis (1997) till the global financial crisis (GFC 2008) have highlighted the strong relationship between the broad macroeconomic environment and financial sector, they also provide evidence for the adverse impact of weak credit and lending policies, poor corporate governance practices, and inadequate loan provisioning. In response to the last GFC, the Basel Committee on Banking Supervision (BCBS) introduced two main group of reforms to the banks’ capital adequacy framework. The Basel 2.5 set of reforms includes measures to enhance the three pillars of Basel II, and Basel III aims at strengthening global capital and liquidity with the eventual goal of promoting the banking sector’s robustness i.e. it acts as architecture for the risk approach to supervision and regulation in the banking sector. An important dimension of the credit risk management process involves macroprudential stress testing that examines the vulnerability of the banking sector’s credit portfolio and factors the results into capital adequacy and profitability measures. The supervisory framework in Egypt consists of two main elements which are the banking supervision sector’s role and the prudential regulations issued by the Central bank of Egypt (CBE)