HKMA publishes report on first climate risk stress test (CRST) of the Hong Kong banking sector

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Authored by: Simon Deane and Crystal Choi

In December 2021, the Hong Kong Monetary Authority (HKMA) issued the results of its pilot CRST. The CRST assesses the potential impact of climate change on the Hong Kong banking sector.

The CRST results showed that the extreme climate scenarios assumed in the exercise would lead to a material reduction in the participating banks’ profitability due to an upsurge in expected credit losses from their exposures directly affected by climate change, such as residential mortgages and lending to high-emitting industries. Climate change could also weaken banks’ capital positions.

The HKMA will continue to engage with the industry to support the sector’s capability building to manage climate risks. In particular, the HKMA intends to:

• reach out to the industry to share the lessons learnt from the CRST and provide guidance to help banks strengthen their capabilities to meet supervisory expectations on managing climate risk;
• explore possible solutions to resolve challenges, especially those that require concerted efforts of banks to improve the climate resilience of the industry as a whole;
• collect the industry’s feedback and enhance the scenario specifications and develop a climate related stress test framework; and
• explore opportunities to collaborate with overseas authorities to promote greater consistency in climate related stress test practices.

The HKMA intends to undertake a second climate related stress test in two years’ time.

To access the report, please see here.

Key Contacts

Simon Deane

Consultant | Banking and Finance

Email or call +852 2825 9209