Stress testing for climate risk is challenging. First, this is a new requirement for banks, and presents a particularly steep learning curve. Second, whilst traditional stress testing is well understood, e.g., credit risk, market risk etc., the transmission channels through which climate risk impacts banks are more complicated. Even though climate risk falls into only three categories (physical risks, transition risks, and liability risks), mapping these risks to their potential impact on banks via households, firms, and the wider economy involves complex cause-and-effect linkages. Third, climate risks play out over much longer time frames than other risks. As such, their impact on bank stability has to be modelled to 2050 and beyond, which raises concerns as to the credibility and usefulness of the resulting analyses. Moreover, past data is of limited use to informing future impacts, as climate risks are increasing.

This 1-day course is intended to enable practitioners to implement climate risk stress testing (CRST) in accordance with BNM’s requirements, as currently embodied in its June 2022 discussion paper, and the more recent February 2024 methodology paper. Once passed into regulation, the CRST demands on banks in Malaysia will have to be met.

This face-to-face course explains the entire process of climate risk stress testing using the delayed transition scenario stipulated by BNM. The course makes widespread use of illustrations and numerical examples to aid understanding and provides ample opportunity for delegates to ask questions and gain important insights to immediately implement BNM’s requirements in practice.

• Key Highlights and Learning Objectives:
  • Learn essential methodologies for climate risk stress-testing.
  • Understand techniques which translate stress-testing scenarios into their resulting impact on bank earnings, liquidity, and capital adequacy.
  • Understand the requirements of Bank Negara Malaysia’s 2022 Discussion Paper on Climate Risk Stress Testing Exercise Methodology Paper, and the 2024 Methodology Paper.