In recent years, China CITIC Bank has adhered to the concept of sustainable development, enhanced the awareness of climate risk management across the Bank, actively explored methodologies for climate risk stress testing, closely monitored advanced practices in climate risk management, engaged with consulting institutions, and scientifically improved the quantification of climate risks.

A “top-down” stress scenario transmission method was adopted to conduct the stress test in 2024. The Bank selected climate and environmental risk stress scenarios, constructed the transmission model between the bank stress-bearing indicators and macroeconomic variables, defined the projected value for each indicator under the stress scenarios, and calculated the results of stress-bearing indicators under different scenarios.

(I) Stress test objects

Industry objects: According to the catalogue of eight high-carbon industries provided by the National Financial Regulatory Administration (NFRA) in the green bank self-evaluation indicators, the Bank selected the top three industries in term of loan size as the industry objects for the stress test: steel, petrochemical and chemical.

Stress-bearing objects: The non-performing loan (NPL) ratios for steel, petrochemical, and chemical industries.

(II) Stress scenarios

The NGFS Disorderly - Delayed Transition and Hot House World - Current Policy were selected as stress scenarios.

(III) Stress test model

A multivariate regression model was adopted for the macro stress test. By finding the relationship between macro indicators and stress-bearing objects (such as NPL), a linear regression model was constructed with the logit-transformed NPL as the dependent variable and macro factors as the independent variables.

(IV) Target year for the stress test

According to the work arrangement for carbon peaking in China’s national strategy for carbon peaking and neutrality, in combination with regulatory and industry practices, the target year for carbon peaking 2030 was selected as the target year for the stress test.

(V) Stress test results

Overall, the non-performing loan (NPL) ratios for all three industries by 2030 would decline compared to 2024. The NPL ratio for the steel industry by 2030 would remain basically stable compared to the end of 2024, and the risks would be controllable. The NPL ratios for the petrochemical and chemical industries would decline compared to the end of 2024. By industry, under the Delayed Transition scenario, the NPL ratios for the steel and petrochemical industries were lower than those under the Current Policy Scenario, while the NPL ratio for the chemical industry was higher.

*The English version were translated based on the Simplified Chinese version. In case of any discrepancies among the versions, the Simplified Chinese version shall prevail.