ECB pardons banks after climate stress tests but imposes duties

ECB pardons banks after climate stress tests but imposes duties

entities they breathe easily despite the poor results climatic stress tests because European Central Bank (ECB) it will not impose any punishments on capital at this time. However, although there are no quantitative requirements, there areHomework was imposed and internal models were asked to review urgently. In any case, the monetary authority is showing its most benevolent and complacent face in the face of an exercise that it has constantly described as learning. The sector feared direct signaling and therefore Frankfurt explicitly asked the banks to keep it a secret individual results, even those that look good in the photo.

The Spanish bank pays attention to the silence demanded by the ECB, although dand unofficially an entity claims to be doing better than its competitors. In any event, the conclusions reached by the institution chaired by Christine Lagarde leaves no room for celebration. They must take decisive action because could accumulate combined credit and market losses that would amount to 70 billions euros if they do not adjust their frameworks in the event of a climate crisis. And the blow could be significant greater if an economic recession is added to it.

Only two out of ten banks take climate risk into account when granting loans to their customers

Around 60% of entities do not yet have a climate risk stress test framework. But, in addition, most of them do not even include this contingency in their credit risk models. Barely 20% take it into account as a variable when granting a loan to a client. There is no good practice in this and they are forced to put in place capacities as soon as possible to carry out climate stress tests that include several channels of transmission of climate risk, such as market and credit risksThat is portfolios, either in companies or in mortgage lending.

In a scene from drought and extreme heatproblems to which Spain is highly exposed, there could be a decline in sectoral productivity, fundamentally in agriculture and construction, as well as an increase in credit losses in the affected areas. Likewise, in a context of heavy floodinga deterioration of property collateral – i.e. houses – and mortgages linked to these assets, as well as business loans.

Nearly two-thirds of banking revenues come from corporate clients linked to CO2-intensive sectors

It is also crucial that they focus on polluting companies, because nearly two-thirds of its revenues come from client companies in intensive sectors in greenhouse gas emissions. Entities often use indirect measures (proxies) to estimate their exposure to emissions-intensive sectors. It’s a very weak tool, so that’s meIt is important that they improve the interaction with their customers for more accurate data and insights into your transition plans. it’s a cfundamental condition for them to calibrate and manage their exposure climate risks in the future.

The results of this stress test will not be taken into account from a quantitative point of view, the capital requirements will therefore not be affected. The ECB stresses that “this year” they will have no impact directly via the Pillar 2 recommendations, but leaves the door open to the imposition of penalties in later reviews. Of course, the ECB has set itself some homework and the results will be taken into account in the supervisory review and evaluation process. qualitative. All banks have received individual requests and the ECB expects them to act accordingly.

The spokesperson for the Spanish Banking Association (AEB), José Luis Campuzano, believes that the bank saved the test by ensuring that they are “satisfactory” and confined itself to pointing out that it was an exercise in which all agents involved learn. In this sense, he insisted that the commitment of the Spanish sector to sustainability is evident, as evidenced by the agreements signed, in the governance reinforcementsin the creation of methodologies and in supporting clients in the transformation towards a more sustainable model.

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