BNM to Conduct Climate Risk Stress Testing Exercise in 2024
The Bank Negara Malaysia (BNM) set out the proposed framework and elements for the industry-wide climate risk stress testing exercise in 2024, with the feedback period ending on September 30, 2022. The proposed climate risk stress testing exercise will be applicable to all licensed Islamic and conventional banks, licensed investment banks, and licensed insurers and takaful operators.
The paper puts forward, for discussion, the applicability and format of the exercise, along with technical elements such as scenario selection, portfolio scope, granularity, and other considerations. The 2024 climate risk stress testing exercise will assess the resilience of Malaysian financial institutions to physical and transition risks arising from various climate scenarios. The discussion paper sets out the current thinking of BNM regarding the 2024 climate risk stress testing exercise. It then outlines the key features of the exercise, including participation, scenario narratives and specifications, modeling horizon, and assumptions for balance sheet growth. The discussion paper poses specific questions to generate feedback on different elements of the exercise. BNM also welcomes feedback beyond these questions, particularly on:
- the feasibility of financial institutions running the exercise as proposed, including areas that may require additional guidance
- whether the proposed design features and conduct of the exercise would be sufficient to achieve the intended outcomes outlined in the paper
In addition, financial institutions are invited to complete the survey on climate risk stress testing capabilities and practices to help BNM gauge current capabilities among financial institutions as well as plans for further strengthening of such capabilities. Insights from the survey are intended to help BNM to understand potential gaps in climate-relevant capabilities, data and common limitations faced by financial institutions, and the existing industry best practices, all of which will inform the final calibration of the 2024 climate risk stress testing exercise. BNM also noted that data initiatives will continue to be pursued via the Joint Committee on Climate Change (JC3) Sub-committee on Bridging Data Gaps. In the immediate term, the Sub-committee will work with key public- and private-sector partners to identify critical data needs, including for the purpose of the climate risk stress testing exercise, and map them to the relevant data sources. On this, a data catalog is expected to be published by the end of 2022.
Based on industry responses to this discussion paper, BNM plans to finalize the key elements of the climate risk stress testing exercise and publish a methodology paper by the end of 2023. Financial institutions will run, in 2024, the industry-wide climate risk stress testing exercise, which will cover both quantitative and qualitative elements. Based on the submission of results by financial institutions, BNM intends to conduct an assessment to size up a system-wide impact and identify the relevant vulnerabilities. BNM plans to publish the aggregated results and immediate next steps by 2025. The aggregated results will supplement supervisors’ knowledge of individual institutions’ vulnerability to climate-related risks, as well as their governance and management of these risks.
Related Links
Keywords: Asia Pacific, Malaysia, Banking, Insurance, Climate Change Risk, Stress Testing, ESG, Scenario Analysis, Climate Risk Stress Testing Exercise, BNM
Featured Experts

James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.

Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager

Nihil Patel
Data scientist; SaaS product designer; credit portfolio analyst and product strategist; portfolio modeler; correlation researcher
Related Articles
CFPB Finalizes Rule on Small Business Lending Data Collection
The Consumer Financial Protection Bureau (CFPB) published a final rule that sets out data collection requirements on small business lending, under section 1071 of the Dodd-Frank Act.
BCBS to Consult on Pillar 3 Climate Risk Disclosures by End of 2023
The Bank for International Settlements (BIS) published a summary of the recent Basel Committee (BCBS) meetings.
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
US Congress Report Examines Data Privacy and Cybersecurity Regulations
The U.S. Congressional Research Service published a report on banking, data privacy, and cybersecurity regulation.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
EU to Conduct One-Off Scenario Analysis to Assess Transition Risk
The European authorities recently made multiple announcements that impact the banking sector.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.