On 28 Feb 2025, the HKMA reported the results of Climate Risk Stress Test 2.0, confirming the Hong Kong banking sector’s resilience to climate-related shocks with capital ratios remaining above 20% under severe scenarios. The test, involving 46 major institutions, highlighted industry advancements in climate risk assessment and will inform the HKMA’s integration of climate risks into its stress testing framework.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Key Findings of Climate Risk Stress Test 2.0
On 28 Feb 2025, the Hong Kong Monetary Authority (HKMA) shared the results of the second round of the Climate Risk Stress Test (CRST 2.0), conducted with 46 authorized institutions representing over 90% of the banking sector’s total lending. The test assessed climate risk exposures under two scenario sets: a short-term scenario featuring simultaneous climate-related shocks and an economic downturn, and three long-term scenarios reflecting different transition pathways. Results indicate the Hong Kong banking sector maintains strong resilience, with stressed capital ratios remaining well above the 8% international minimum requirement across all scenarios. The sector’s total capital ratio is projected to decline by 1.4 to 3.1 percentage points under dual climate and economic shocks, but remains robust at over 20%, demonstrating capacity to absorb such impacts. The exercise also highlighted industry advancements in climate risk assessment capabilities, including enhanced data processing, methodologies, and adoption of technologies like artificial intelligence.
HKMA's Next Steps and Industry Guidance
On 28 Feb 2025, the HKMA acknowledged the strengthened stress testing capabilities of participating authorized institutions and identified emerging good practices in data collection, model governance, and technological application. The Authority will continue to provide supervisory guidance under the Sustainable Finance Action Agenda, with a specific focus on optimising the integration of climate risks into its supervisor-driven stress testing framework to enable more comprehensive resilience assessments. All authorized institutions are encouraged to review the attached report and consider further enhancements to their climate-related risk management practices based on the insights and industry best practices documented in CRST 2.0.
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