The International Monetary Fund (IMF) will make banks from Australia and 17 other nations undergo a stress test to ensure these lenders could withstand another financial crisis. It is part of the required five-year check-up of the top 25 global financial sectors.

The focus of the stress test would be potential risks in large, interconnected financial sectors. The examination includes an evaluation of the quality of bank, insurance and financial market supervision against global standards.

The IMF said in September 2010 that 25 economies must go through regular review on the size of their financial sectors and strength of their links with financial sectors of other countries.

Besides Australia, the test would be done on banks in Brazil and Japan.

Australian banks are known for its reliance on offshore funding market and big exposure to the domestic property sector, but these lenders are also considered strong with low mortgage delinquencies.

In 2020, the Australian Prudential Regulation Authority (APRA) held a stress test and the four largest local banks passed. The APRA stress test was based on a 3 per cent contraction in real gross domestic product, an 11 per cent joblessness rate, a 25 per cent maximum decline in home prices and 45 per cent dip in commercial property prices.

The APRA also required in October the banks to submit living wills by the end of 2011 to help reduce the effect of bank failures on the financial markets.

The IMF stress tests will also simulate hour the banks' finances would withstand different scenarios such as a fallout from the eurozone debt contagion, weak economic growth and a double-dip recession.

Depending on the result of the IMF stress test, Japanese banks could be under pressure to expand their capital buffers. Although Japanese banks don't have large direct exposure to European debt compared to American and European banks, Japan's Financial Services Agency has initiated measures to prevent solvency or liquidity problems.

It would also help determine the vulnerability of Japanese banks to a likely decline in the value of their large holdings of Japanese government bonds. It is not only the banks, but even credit ratings agencies, investors and Japan's central bank governor have expressed concern about the country's growing debt which is about twice Japan's yearly economic output.

It would be the first IMF stress test for Japan since 2002-03 when the fund held an inspection of the country's banking system under the Financial Sector Assessment Programme.

A BOJ report made in October showed that major Japanese banks could absorb capital losses of about ¥3.4 trillion and regional banks up to ¥2.8 trillion if bond yields would go up by one percentage point which would push down prices of their bond holdings.

Meanwhile, Egypt asked the IMF for a $3.2-billion standby facility to help boost its economy caused by 2011's political turmoil that caused tourists and investors to shy away from Cairo.

An IMF mission has begun initial discussions in the Egyptian capital on Monday. Egyptian Minister for International Cooperation Fayza Aboul Naga said an agreement is expected within weeks.

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