7th November, 2022 – CWR releases new “HK Double Blind Maximum Risk Case Study”, a key section from its new report “Futureproofing APAC Banks & Savings: Stress test right today, avoid hard landing from rising seas”, which analyses the impact of rising seas on 17 major APAC banks from Australia, Hong Kong, Japan, Singapore and South Korea with loan books totalling US$7.9 trillion.

CWR’s deep dive case study on Hong Kong clearly shows that adapting to only 0.5m of sea level rise (SLR) by 2100 instead of 2-3m, which the IPCC warns “cannot be ruled out”, will put 24x more residential, commercial & industrial buildings at risk in Hong Kong. Yet, the HK government is defending the SAR to the low-to-medium emissions scenario – in short 0.49m of SLR by 2100.

But even at lower levels the risks for Hong Kong banks are high – the Hong Kong Monetary Authority’s (HKMA) pilot climate stress test showed that around a third of Hong Kong banks’ property loan books are vulnerable to climate risks, especially floods and typhoons. As at most SLR of 0.55m of SLR was used to assess risks in the stress test, the percentage of loan books at risk from 2-3m of SLR will be substantially higher.

This huge adaptation gap brings high exposure and could trigger systems collapse.

“Evidently, even sophisticated financial systems in developed Asia are exposed. In Hong Kong, banks/central banks and the government are on a “Double Blind Maximum Risk” path as none are acting to properly assess/adapt for SLR risks” CWR’s Dharisha Mirando, the lead author of the report stated.

Can central banks steer away from systems collapse? According to Debra Tan, CWR’s Head & Director, “all paths to financial resilience starts with stress testing right today” and “futureproofing the financial sector against SLR risks requires banks and governments to align their adaptation strategies”.

CWR hopes that the analyses in the chapter will help central banks steer away from a “Double Blind Maximum Risk” path toward “Transformative Adaptation”, the path that provides banks with the highest chance of staying afloat despite rising seas.

Central banks can also use this section as a case study on how to stress test for SLR as currently there are no concrete examples or case studies on how banks should stress test for rising seas, which are chronic and long term compared to acute one-off events that most banks are stress testing for.

The section includes the following

• Highlights the risks at various scenarios and explains why it is important to analyse the right timeline and scenario
• Analyses of what’s at stake in HK from physical SLR risks & the lack of government adaptation action; and
• Highlights need for HKMA and HK banks to step up and lead, by first stress testing right to ensure their portfolios and HK are safe.

The chapter also includes a new “Save HK Banks From Sinking” factsheet.

Analyses of overall HK loan book exposure to domestic market and vulnerable sectors, and in more detail for Bank of China (HK), Bank of East Asia, HSBC, and Standard Chartered; 3D map highlighting property at risk from 2-3m of SLR; and Comparison of HK government coastal adaptation action against Singapore and New York.

 

To access the Hong Kong Deep Dive, which explores the risks facing HSBC, Standard Chartered, Bank of China (HK), and Bank of East Asia in more detail, click here.

To access the “Save HK Banks From Sinking” factsheet click here.

To access the Press Release and Media Pack please click here.