Climate risks could cut profits at HSBC, Standard Chartered and other banks by 15 per cent, Bank of England says

Name: Central under water in 80 years? Hong Kong’s coming climate crisis
Uploaded: 2022-05-24T17:50:27.000Z
Duration: 9 min 22 s
Description: Central under water in 80 years? Hong Kong’s coming climate crisis

British banks could suffer US$281 billion in credit losses by 2050 if the transition to net zero is delayed a decade, stress test by central bank shows

Insurers could see their total market value shrink by 15 per cent under the worst-case scenario

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The Bank of England in the City of London. The central bank conducted a stress test on the effects of failing to address climate risks on 19 British-based banks. Photo: EPA

Chad Bray

Published: 1:50am, 25 May 2022

HSBC, Standard Chartered and other British-based banks and insurers could see their annual profits fall by 10 per cent to 15 per cent if they fail to address climate risks in a timely fashion, according to a stress test conducted by the Bank of England.

The British banking industry could suffer about £225 billion (US$281 billion) in credit losses by 2050 if the move to a net-zero economy – one that cuts greenhouse gas emissions to close to nothing – is delayed by a decade, the central bank found in its first stress test examining the financial risks of climate change.

Insurers also could see their total market value shrink by 15 per cent under the bank’s worst-case scenario.

“These are big numbers, and the limits of the exercise mean the actual impact could well be larger,” said Sam Woods, the head of the central bank’s Prudential Regulation Authority, in a speech coinciding with the release of the stress test results on Tuesday. “But it bears repeating that based on this exercise, the costs of a transition to net zero look absorbable for banks and insurers, without a worrying direct impact on their solvency.”

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Central under water in 80 years? Hong Kong’s coming climate crisis

“By themselves, these are not the kinds of losses that would make me question the stability of the system, and they suggest that the financial sector has the capacity to support the economy through the transition,” he added.

Hong Kong is the largest market for HSBC and Standard Chartered, which are based in London with the Bank of England as their chief regulator.

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