In December 2021, the Hong Kong Monetary Authority (HKMA) issued the results of its pilot climate risk stress test (CRST). The CRST assesses the potential impact of climate change on the Hong Kong banking sector. It marks the latest such publication by a regulator on the topic, with French regulator, Autorité de contrôle prudentiel et de résolution (ACPR), having published the results of its climate risk stress test in Q2 2021 and a number of other countries’ regulators undertaking similar analyses during 2022.
The CRST indicates that the Hong Kong banking sector should remain resilient to climate-related shocks given the Banks’ strong capital buffers. However, it was noted that simplified assumptions and use of historical data in modelling could mean the potential impact could be more serious than predicted.
The exercise identified various climate-related vulnerabilities for Banks to seek to address and highlighted gaps in terms of insufficient granular, reliable data, as well as a lack of widely-accepted standards for classifying and identifying climate risk exposures. HKMA notes that addressing these issues will require concerted efforts of the industry.
In this Blog Post, we set out a high level summary of the CRST in terms of the scope of the CRST, pertinent findings and actions required to enhance climate risk management going forward.