The Agency for Regulation and Development of the Financial Market of the Republic of Kazakhstan has published the results of the banking sector’s first climate stress test conducted in 2024, assessing how physical and transition climate risks could affect banks over a three-year horizon. Under the severe scenario, aggregate bank capital declines from 17.4% to 14.2%, with pressure driven mainly by higher credit and market risks, while capital adequacy remains significantly above minimum requirements. The exercise covered 11 banks representing 85% of banking system assets and analysed physical risks from drought, extreme heat and floods and transition risks linked to decarbonisation, including lower demand for Kazakhstan’s exports, tighter environmental standards and the European Union Carbon Border Adjustment Mechanism. A baseline scenario assumed climate measures consistent with limiting warming to 1.5°C, while the stress scenario assumed insufficient emissions reductions and warming to 3°C, increasing Stage 2 exposures from 2.6% to 21.2% and Stage 3 problem loans from 10.5% to 15%, while the probability of default for Stage 1 exposures rose from 4% to 5.6%. Provision increases were concentrated in construction at 41% and manufacturing at 21%, and collective portfolios showed higher problem-loan shares in small and medium-sized enterprises by 5.6 percentage points and consumer lending by 8.2 percentage points. The agency said it will continue work in this area and has published a full report on its official website.

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