April 23, 2024

Climate change: Hong Kong Monetary Authority to roll out risk assessment platform for banks, workforce training programmes

The Hong Kong Monetary Authority is expanding its role as a banking supervisor by addressing the pain points faced by the industry when managing climate risk, including setting up an online risk assessment platform and training the workforce.
The authority has been developing the cloud-based physical risk assessment platform for banks to analyse the risk to their property assets in different climate scenarios – a rare initiative from a regulatory body, according to Arthur Yuen Kwok-hang, deputy chief executive at the HKMA.

“We have developed a physical risk assessment engine that will be rolled out pretty soon for banks to use, helping them to assess physical risk in the next five, 10, 20, 50 years for a particular exposure to a property in Hong Kong,” Yuen said.

It has asked the Hong Kong Institute of Bankers to introduce a programme under the Enhanced Competency Framework on Green and Sustainable Finance to develop talent. The programme, which has been designed with input from the industry, will be unveiled soon, Yuen said.


Cop28 prepares temperature check on climate at Dubai meeting

Cop28 prepares temperature check on climate at Dubai meeting

“Green is perhaps one of the most challenging aspects in terms of capacity building because it requires such a diversity of skill sets to be put together in financial institutions,” said Yuen.

The HKMA also partnered with the International Finance Corp to start the Asia chapter of the Alliance for Green Commercial Banks, which regularly holds training sessions for commercial bank staff to gain exposure to the latest concepts of climate risk and green finance.

“[Because of] the cross-disciplinary nature of [green and sustainable finance], you need your compliance and risk management people, loan officers, even IT people, model experts to know what green, sustainability or transition is about,” Yuen said. “[That way] the whole system will become green-trained or conversant in five, six years.”

Meanwhile, the HKMA is doing a second round of climate stress tests with more granular and complex scenarios for banks to evaluate its resiliency, following a pilot climate stress test in 2021.

The purpose of the stress test is not to name the underperforming banks but to encourage the banking industry to pay more attention to the interactions between different climate risk scenarios, Yuen.

He believes banks in the city generally have sound risk management practices.

“Activities are just picking up regarding green and sustainability-related lending,” said Yuen. “I don’t think we are too concerned about banks’ ability to manage those portfolios for now. We are actually more into encouraging them to do more.”

Sustainable bond and loan offerings in Hong Kong surged 42 per cent to US$80.5 billion in 2022, close to seven times the size two years earlier. Green loans, where banks provide funds directly to enterprises and companies, took up roughly two-thirds of the latest tally.

“At least initially, we’re not using those [stress test results] as a supervisory input; we want banks to use it as a way of testing the ability to look at these risk points. We [would] rather at this stage not use that for capital setting purposes, for example,” Yuen said.

Enormous investments are needed for all jurisdictions to achieve net-zero emissions, Yuen admitted. But this presents great opportunities.

“I take it as not just a business opportunity for our banks, [but also] as a responsibility for them,” said Yuen. “It’s not the traditional type of dollars and cents, bean counting-type of financial intermediation; it has a higher goal to achieve – to leave our future generation with a liveable earth.”

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