Climate Change Management: Risks and Opportunities

Otbasy Bank JSC is consistently advancing the integration of climate-related risks into its overall risk management system, aligning with international standards including IFRS S2, as well as methodological guidance from the Agency for Regulation and Development of the Financial Market. The Bank’s approach is grounded in the recognition that climate factors can directly or indirectly amplify traditional categories of banking risks – ranging from credit to operational and strategic risks.

In 2024, with the support of international consultants, the Bank completed the development of its proprietary methodology for climate-related risk assessment. This included the classification of physical and transition risks, along with an initial diagnostic of the credit portfolio’s exposure through scenario analysis and stress testing. The assessment utilized geographic data, information on collateral, and property types, enabling the identification of zones within the mortgage portfolio that are most vulnerable to floods, abnormal temperatures, and other climate-related events.

Climate-related risk management is carried out within the existing risk management framework: identification, assessment, monitoring, and response. Physical risks – such as the potential damage to collateral from extreme weather events (floods and landslides) – are assessed alongside transition risks, including stricter energy efficiency regulations, increased demand for energy-efficient housing, and shifts in funding policies.

Based on this analysis, the Bank developed a climate-related risk matrix that classifies threats by impact level, source, and frequency. Priority risk categories were identified, with integration to be implemented in stages – starting with those posing the highest risk to financial stability. Climate factors will be incorporated into underwriting and monitoring processes and used in calculating expected losses under alternative climate change scenarios.

In parallel, the Bank is developing internal procedures to integrate climate-related considerations into risk appetite, the risk register, internal reporting, and key performance indicators (KPIs). Depending on the evolving regulatory landscape, the Bank is also considering a transition to regular climate stress testing, to be conducted across short-, medium-, and long-term horizons. This will help assess the resilience of the Bank’s capital and liquidity in the face of systemic climate shocks.

The Bank is building a comprehensive, data-driven, and strategically embedded climate-related risk management system, ensuring adaptability, transparency, and resilience amid escalating environmental and regulatory challenges.