Regulatory Alerts2025-12-26 | FSD Circular No. 01Guidelines on Climate Stress Testing 2025
The State Bank of Pakistan has introduced mandatory climate stress testing guidelines for financial institutions, encompassing physical risk scenarios like floods and transition risks such as carbon tax impacts. These institutions must assess their capital adequacy and liquidity positions using standardized historical flood data and sectoral vulnerability scores while also reporting results regularly to their Risk Management Committees. Furthermore, Domestic Systemically Important Banks are required to incorporate these climate-related risks into their broader macro stress testing and scenario analysis exercises to ensure long-term financial stability.
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