Regulator also warns of growing cyber threats
The Australian Prudential Regulation Authority has warned of a “clear impact” from climate risk on bank lending portfolios.
On Friday, APRA chair John Lonsdale told the regulator’s annual conference that climate change posed a “big risk” to the financial sector even though Australia’s financial system is strong and well-capitalised, The Australian reported.
APRA is preparing to release the results of a sweeping climate vulnerability assessment, which estimated the potential impact of climate risk on banks’ mortgage and business lending portfolios.
“We will be coming out very soon with some results out of that,” Lonsdale said. “Without wanting to front-run that too much, what I’d say is there is a clear impact on the financial metrics through climate change. Not in the aggregate but certainly pockets, so there are regional impacts – there are different impacts on different types of businesses.”
Lonsdale told The Australian that APRA intended to release the results of the assessment by the end of the month.
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APRA executive director Sean Carmody said the biggest climate risks faced by banks were in their loan books.
“A lot of the analysis is modelling credit exposure, really looking at what it does to elevate credit losses in certain segments,” Carmody told The Australian.
Lonsdale also touched on the issue of cyber risk at the conference, urging boards and company management to up their cybersecurity game.
“There is work to do … boards really need to push into cyber [security] more, challenge management,” Lonsdale said. He added that management needed to make sure boards were presented with adequate data and assessed risks related to third-party outsourcing.
“Know what data you’ve got, know if it’s sensitive, know if it’s critical – and most of all, know where it is,” Lonsdale said.
