CAREC Institute Releases a New CTTN Grants Paper on Climate Change Risks to Banking Systems

The CAREC Institute has released a new research paper titled Impact of Climate Change on the Resilience of the Banking System: the Cases of Kazakhstan and Kyrgyz Republic under the Institute’s 2025 CAREC Think Tank Network (CTTN) Grants Research Program. The paper was authored by Zaira Satpayeva, Nurgul Akimova, and Dana Kangalakova.  

The authors adopted a quantitative framework that included vector autoregression modeling, climate-enhanced stress testing, and the Climate Policy Assessment Tool to evaluate the climate-related financial risks of the banking systems of Kazakhstan and the Kyrgyz Republic.

Key findings show clear differences in climate-related financial risks for the banking systems of Kazakhstan and the Kyrgyz Republic. Kyrgyz Republic banks are vulnerable to remittance-driven shocks, while Kazakhstan banks face greater risks from commodity price volatilities and stranded assets. Current capital buffers cannot withstand combined climate and economic stress, even when baseline regulatory rules are met. Physical climate risks may force banking sector to strengthen resilience through diversification and better risk management, but sudden transition shocks pose immediate systemic threats and call for well-planned transition paths.

The paper suggests tailored climate risk policies for Kazakhstan and the Kyrgyz Republic and strengthened regional cooperation. Kazakhstan needs improved foreign exchange risk management, sectoral diversification and the gradual introduction of carbon-linked capital rules. Kyrgyzstan requires remittance-linked prudential measures, migration-sensitive credit assessment and green finance development. Regional alignment on risk assessment, early warning systems and regulation is key to enhancing systemic resilience and curbing regulatory arbitrage.