Stress Testing Climate Change Scenarios

The measurement and management of climate-related financial risks are under scrutiny by regulators. New expectations include having a clear governance structure, accountability, policy, and analysis. These expectations are stretching lenders’ expertise and resources.

Secure Trust Bank enlisted Jaywing’s support with the articulation of climate risk and tasked our experts with stress testing their real estate finance and motor finance portfolios.

Jaywing identified key risks considering physical and transitional factors linked to climate change that could increase future losses. This included risks that were likely to affect either the ability of customers to repay their obligation, or the associated asset value. Following an analysis of the latest regulatory requirements, including applicable thematic reviews, supervisory statements and best practices, our risk experts identified known and plausible future influences on the portfolio. Using this analysis, Jaywing then worked collaboratively with Secure Trust Bank’s portfolio experts to produce meaningful climate risk scenarios for decision making and risk management.

Our risk consultants determined the impact to key risk drivers, and the resulting change to PD and LGD. Projections for credit losses due to climate risk can now be estimated and included in crucial MI. As climate change continues to present an increasing risk to economic growth and the financial market, this forward-looking view will help Secure Trust Bank’s senior leadership assess and manage these risks.

Commenting on the partnership, Secure Trust Bank's Group Head of Consumer Credit Risk said “Climate Change Risk is clearly an important area of focus for all organisations."

"Jaywing has supported us in navigating through the potential implications of Climate Change for our portfolios using plausible, yet stretching, scenario setting. The conversion into loss estimates enables us to understand the potential impact of these changes and therefore manage these risks more effectively”

Mike Abraham, Group Head of Consumer Credit Risk at Secure Trust Bank