Not-So-Magical Realism : A Climate Stress Test of the Colombian Banking System
This report identifies and assesses relevant physical and transition risks with focus on the banking sector. Banks constitute the largest segment of the Colombian financial sector with asset holdings of Colombian peso (Col dollars) 720 trillion (US...
| Main Author: | |
|---|---|
| Format: | Report |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/undefined/957831635911537578/Not-So-Magical-Realism-A-Climate-Stress-Test-of-the-Colombian-Banking-System http://hdl.handle.net/10986/36586 |
| id |
okr-10986-36586 |
|---|---|
| recordtype |
oai_dc |
| spelling |
okr-10986-365862021-11-18T05:11:12Z Not-So-Magical Realism : A Climate Stress Test of the Colombian Banking System World Bank CLIMATE CHANGE NATURAL DISASTER BANKING SECTOR FINANCIAL RISK FLOOD RISK MACROECONOMIC RISK VULNERABILITY GENERAL EQUILIBRIUM MODEL This report identifies and assesses relevant physical and transition risks with focus on the banking sector. Banks constitute the largest segment of the Colombian financial sector with asset holdings of Colombian peso (Col dollars) 720 trillion (US209 billion dollars or 78 percent of gross domestic product [GDP]) in 2020. This includes both foreign and domestic banks. Some banks are parts of larger conglomerates in which the related entities could be exposed to similar climate-related financial risks, such as foreign banks, insurance companies, and asset managers. Insurance companies and asset managers are, however, not part of this report. The scope of our analysis includes both physical risks (that is, those emanating from weather-related events and gradual changes in climatic conditions) and transition risks (that is, those emanating from decarbonization of the global economy in line with targets in the Paris Agreement). The authors note that we use a broad definition of physical risks, covering both climate-related disaster risks and the effects of climate change on their probability distribution. In the remainder of the report, authors refer to the collection of these risks as climate-related financial risks, or climate-related risks in short. The report also builds on quantitative data from a range of sources to explore the vulnerability of banks in specific scenarios. The report bases its analysis on data provided by the SFC, the Central Bank of Colombia (BR), the National Planning Department (DNP), and the Institute of Hydrology, Meteorology and Environmental Studies (IDEAM), and further desk research. In general, the report focuses on three main channels through which climate-related risks affect Colombian banks’ balance sheet: the effects on credit risk in the loan portfolio, the effects on the market value of government bonds, and the effects on exposures through investments in other financial institutions. These three channels represent the most important asset classes, covering 79 percent of total assets in the Colombian banking sector. However, in some of our quantitative assessments, we limit our scope further owing to data limitations, including investments in related entities and noncorporate loans (the latter only for transition risk). Because data are not available for all potential channels that affect the financial sector, our outcomes can be conservative and lead to an underestimation of the total effect of climate risks on banks. 2021-11-17T15:23:56Z 2021-11-17T15:23:56Z 2021-11-01 Report http://documents.worldbank.org/curated/undefined/957831635911537578/Not-So-Magical-Realism-A-Climate-Stress-Test-of-the-Colombian-Banking-System http://hdl.handle.net/10986/36586 English Equitable Growth, Finance and Institutions Insight; CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Economic & Sector Work Economic & Sector Work :: Other Financial Sector Study Latin America & Caribbean Colombia |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
CLIMATE CHANGE NATURAL DISASTER BANKING SECTOR FINANCIAL RISK FLOOD RISK MACROECONOMIC RISK VULNERABILITY GENERAL EQUILIBRIUM MODEL |
| spellingShingle |
CLIMATE CHANGE NATURAL DISASTER BANKING SECTOR FINANCIAL RISK FLOOD RISK MACROECONOMIC RISK VULNERABILITY GENERAL EQUILIBRIUM MODEL World Bank Not-So-Magical Realism : A Climate Stress Test of the Colombian Banking System |
| geographic_facet |
Latin America & Caribbean Colombia |
| relation |
Equitable Growth, Finance and Institutions Insight; |
| description |
This report identifies and assesses
relevant physical and transition risks with focus on the
banking sector. Banks constitute the largest segment of the
Colombian financial sector with asset holdings of Colombian
peso (Col dollars) 720 trillion (US209 billion dollars or 78
percent of gross domestic product [GDP]) in 2020. This
includes both foreign and domestic banks. Some banks are
parts of larger conglomerates in which the related entities
could be exposed to similar climate-related financial risks,
such as foreign banks, insurance companies, and asset
managers. Insurance companies and asset managers are,
however, not part of this report. The scope of our analysis
includes both physical risks (that is, those emanating from
weather-related events and gradual changes in climatic
conditions) and transition risks (that is, those emanating
from decarbonization of the global economy in line with
targets in the Paris Agreement). The authors note that we
use a broad definition of physical risks, covering both
climate-related disaster risks and the effects of climate
change on their probability distribution. In the remainder
of the report, authors refer to the collection of these
risks as climate-related financial risks, or climate-related
risks in short. The report also builds on quantitative data
from a range of sources to explore the vulnerability of
banks in specific scenarios. The report bases its analysis
on data provided by the SFC, the Central Bank of Colombia
(BR), the National Planning Department (DNP), and the
Institute of Hydrology, Meteorology and Environmental
Studies (IDEAM), and further desk research. In general, the
report focuses on three main channels through which
climate-related risks affect Colombian banks’ balance sheet:
the effects on credit risk in the loan portfolio, the
effects on the market value of government bonds, and the
effects on exposures through investments in other financial
institutions. These three channels represent the most
important asset classes, covering 79 percent of total assets
in the Colombian banking sector. However, in some of our
quantitative assessments, we limit our scope further owing
to data limitations, including investments in related
entities and noncorporate loans (the latter only for
transition risk). Because data are not available for all
potential channels that affect the financial sector, our
outcomes can be conservative and lead to an underestimation
of the total effect of climate risks on banks. |
| format |
Report |
| author |
World Bank |
| author_facet |
World Bank |
| author_sort |
World Bank |
| title |
Not-So-Magical Realism : A Climate Stress Test of the Colombian Banking System |
| title_short |
Not-So-Magical Realism : A Climate Stress Test of the Colombian Banking System |
| title_full |
Not-So-Magical Realism : A Climate Stress Test of the Colombian Banking System |
| title_fullStr |
Not-So-Magical Realism : A Climate Stress Test of the Colombian Banking System |
| title_full_unstemmed |
Not-So-Magical Realism : A Climate Stress Test of the Colombian Banking System |
| title_sort |
not-so-magical realism : a climate stress test of the colombian banking system |
| publisher |
World Bank, Washington, DC |
| publishDate |
2021 |
| url |
http://documents.worldbank.org/curated/undefined/957831635911537578/Not-So-Magical-Realism-A-Climate-Stress-Test-of-the-Colombian-Banking-System http://hdl.handle.net/10986/36586 |
| _version_ |
1764485523541327872 |