A recent finding by APRA reveals that Australian banks may be more vulnerable to economic downturns as they face threefold increase in lending losses by 2050. In mitigating this, banks are expected to lower lending households and businesses in northern Australia as well as fossil fuel industries across the country as pressure amounts from greater risks of climate crises.
The assessment found the country’s five biggest banks – ANZ, Commonwealth Bank, Macquarie, NAB and Westpac – were likely to respond to the potential for higher lending losses by tightening loan-to-value ratio limits on new mortgages and reducing lending to regions and economic sectors most at risk unless there was additional government policy support.
Whilst the government may be forced to increase funding for the underlying climate science, banks should also be keeping up to significantly improve their analysis that translates the science into comprehensive climate risk models to accommodate for greater financial activity in emerging industries assessment showed banks were changing their lending practices. Erwin Jackson, policy director with the Investor Group on Climate Change, stated “That means pulling back from banking vulnerable industries and regions. In a similar vein marking the direction of the financial sector, “Investors are also undertaking similar approaches in response to climate risks.”