Reserve Bank stress tests banks on climate risk

ANZ, ASB, BNZ, KiwiBank and Westpac, which collectively hold 90% of bank loan balances, have agreed to take part in the climate-related test scenario which will look at their ability to withstand severe, but plausible long-term climate-related challenges.

Deputy Governor Christian Hawkesby says the RBNZ runs the test each year to assess banks’ resilience, making sure they have enough capital to withstand severe shocks, while being able to continue supporting the economy.

The broader New Zealand economy has already been impacted by the cyclone and inland flooding affecting Auckland and other areas of the North Island in early 2023. “Globally we are seeing the extreme climate crises other countries are dealing with,” Hawkesby says.

As a result the RBNZ thinks it prudent to explore the more severe aspects of climate-related physical risks, which are expected to increase in the future, combined with risks that may materialise in transitioning to a lower carbon emitting economy, through a stress test of our largest banks.