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New Zealand central bank publishes stress test to assess banks’ climate resilience

WELLINGTON (XINHUA) – The Reserve Bank of New Zealand (RBNZ) published the stress test scenario yesterday to test the ability of the country’s largest banks to withstand climate-related challenges.

The stress tests are run each year to assess the banks’ resilience, making sure they have enough capital to withstand severe shocks, while being able to continue supporting the economy, said RBNZ Deputy Governor Christian Hawkesby. In the case of the climate stress test, the main purpose is to improve banks’ capability to manage climate-related risks, Hawkesby said.

“Climate change is already impacting the global economy and the risks are expected to intensify,” he said, citing the severe weather events in New Zealand’s North Island earlier this year as examples of climate change playing out locally.

“Globally, we are seeing the extreme climate crises other countries are dealing with,” Hawkesby said.

He said the RBNZ has a role to play in helping the financial industry prepare for the growing physical and transition risks that climate change poses, he said, adding that the climate stress test will indicate how climate risks may play out in the banking sector and help build the capability to manage those risks.

The 2023 scenario, titled ‘Too Little Too Late’, was developed in consultation with the participating banks in New Zealand, such as the Australia and New Zealand Banking Group Limited, ASB Bank, Bank of New Zealand, Kiwibank and Westpac, as well as climate experts.

Banks have until the end of this year to determine their exposure to climate-related risks by modelling the effects of the scenario on their balance sheets out to 2050.

An aggregate report will be published on how the banks performed next year, Hawkesby said.

File photo shows a child riding a bicycle in downtown Wellington, New Zealand. PHOTO: AP