2022 Flood Risk Assessment for Residential Mortgages

Banks identified the impact separately for: o Coastal flooding risk from sea level rise nationwide (and for the major regions), and o Rainfall flooding risk in Auckland, with rising severity of extreme rainfall events. * The major findings from the complete exercise are that: o It has highlighted th...

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Bibliographic Details
Published in:Reserve Bank of New Zealand Bulletin 2023-03, Vol.86 (2), p.1-14
Main Authors: Newman, Rebecca, Adams-Kane, Jonathon, Nicholls, Ken
Format: Article
Language:English
Subjects:
Banks
Climate change
Financial institutions
Flood damage
Flood forecasting
Flood insurance
Floods
Forecasts and trends
Futures
Management
Mortgages
Prices
Property values
Rain
Risk
Risk assessment
Risk management
Sea level
Storm damage
Tidal waves
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Summary:Banks identified the impact separately for: o Coastal flooding risk from sea level rise nationwide (and for the major regions), and o Rainfall flooding risk in Auckland, with rising severity of extreme rainfall events. * The major findings from the complete exercise are that: o It has highlighted that there are outstanding data gaps, particularly pertaining to rainfall flood risk and portfolio location data. o The banks in their submissions indicated that there is active planning and procurement of better climate data across the industry; this will improve risk management capability, including climate stress testing. o Results indicate there is a relatively small proportion of banks' value of residential mortgages exposed to significant sea level rise and this is reflected in the size of provisions. Aggregate residential mortgage provisions rise significantly from current levels (from $0.4bn in March 2022 to $1.3bn for the most severe house price fall sensitivity) despite only half of the national mortgages being considered (mortgage loans in Auckland make up half of the national total). o Overall, banks' capital ratios are resilient to the most severe sensitivities in the exercise when each shock is considered in isolation, with the aggregate capital ratio falling by up to 41 basis points. [...]house prices have fallen and mortgage rates have risen, making customers more vulnerable to the shocks considered in this exercise if we were to re-run it today. * Sensitivities allow us to focus on specific risks and parts of banks' loan portfolios, and do not consider the effects of climate-related risk across banks' full balance sheet. [...]coastal flooding alone is not likely to be a risk to financial stability.
ISSN:1174-7943
1177-8644