LENDING & CREDIT, RETAIL BANKING | Staff Reporter, New Zealand

New Zealand's climate reporting policy to impact banks minimally: Fitch

Agricultural loans, comprising 13% of sector loans, will come under crutiny.

New Zealand's proposed mandatory climate risk reporting requirement will not impact domestic banks' financial and risk profiles, at least in the short term, reports Fitch Ratings.

The new policy, set to come into force in 2023, will not immediately force banks to hold additional capital to meet climate change risks.

The policy makes New Zealand the first country in the work to require reporting on climate risks, the local government claims. It will apply to around 200 organisations, including all registered banks, credit unions, and building societies with total assets of more than $665m (NZ$1b).

It is expected to improve transparency and consistency of climate risk reporting by New Zealand banks, notes Fitch. This, in turn, could lead to changes in their risk management strategies or risk appetite over time, especially as they make efforts to quantify the impact of extreme weather events on real-estate exposures.

In particular, the policy is expected to hit on agricultural lending, which is New Zealand’s greatest source of greenhouse gas emissions. These exposures are set to come under heightened scrutiny as environmental reporting gathers pace.

“Banks play an important role in the financial system in New Zealand, reflected in their large size relative to the domestic capital markets. We expect the new disclosure requirements, if approved, to force banks to better understand climate risks within their loan portfolios,” they said in a media note.

Agricultural lending accounted for 13% of sector loans as of end-June 2020, whilst retail mortgage lending made up 61%.

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