CBA mortgages worth $31 billion at risk from extreme weather events

CBA is the country’s largest property lender, holding $556 billion in mortgages in Australia. While the number of mortgages assessed as high risk due to climate factors represented only a fraction of its overall home loan portfolio, approximately two-thirds of major bank loans are for residential mortgages, making any change in housing values ​​a risk.

The bank also reviewed ABS data on employment and location of mines and ports, and analyzed the potential timing and magnitude of changes in Australian coal export demand to estimate the likely impact on economic activity and employment opportunities in areas dependent on the coal value chain.

The report says communities with a high labor force concentration in fossil fuel-related industries would be likely to be significantly impacted under various Paris-aligned scenarios.

“The concentration of a local area in the fossil fuel value chain increases the risk that indirect employment and broader economic value, including the value of residential properties in those areas, will be reduced due to a reduction significant contribution to global coal demand,” the report said. .

There were a range of uncertainties when analyzing climate scenarios, the bank noted, adding that the ABC was still in the early stages of developing the approach and more was needed to improve granularity. and precision.

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The Reserve Bank has previously warned that properties in parts of Australia exposed to climate change and severe weather could see valuation declines that would leave banks with less protection in the event of default.

About 3.5% of homes in Australia fall under an international definition of “high risk” of climate damage, RBA economists said in a research paper.

But they note that it is the rise in climate risk not yet reflected in house prices that is key when considering banks’ exposures in climate-sensitive regions.

A spokesperson for the ABC said a key part of their approach was to provide more quality data to facilitate the transition to net zero. The bank is partnering with CSIRO to produce emissions transition scenarios for the residential sector, which they intend to make public.

The Australian Prudential Regulation Authority is working with the country’s largest banks to identify their potential vulnerability to climate change amid growing global recognition of the risks it poses to the entire financial system. The findings of APRA’s climate vulnerability assessment are expected this year.

Former APRA member Geoff Summerhayes, who works with climate change consultancy Pollination, said Australia’s largest financial institutions had recently significantly increased their engagement, monitoring and disclosure of climate risks, which which was “pleasant and reassuring to see”.

“Despite efforts to decarbonize the economy, the climate has already changed and will continue to warm for decades,” he said. “It is therefore also essential for financial institutions and businesses to build the resilience of their operations and understand how they will need to adapt their operations to a warmer and more volatile climate.”

Adrian King, head of climate change and sustainability services at KPMG, said their research found that while Australian banks had been in the lead for many years in climate risk disclosure, the pace had slowed in recent years compared to their international competitors.

“The pace of change is so rapid in this area,” he said. “They used to be ahead of the pack, but unless they move at an extraordinarily fast pace, they’re likely to fall behind their international peers at some point.”

He said there had been good progress in recent months, with the big four banks joining the UN’s Net-Zero Banking Alliance, which provides a logical and clear path to make these calculations.

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