Bangladesh: Technical Assistance Report-Report on Climate Risk Analysis

A Technical Assistance (TA) mission was conducted in Dhaka, Bangladesh, from March 5 to 9, 2023, to assist authorities in setting up a framework to assess physical climate risk in the financial system. The TA mission focused on (i) proposing a risk assessment framework tailored to available data, with a focus on the impact of floods on the banking sector, (ii) taking stock of financial and climate data availability and identifying data gaps, (iii) setting up collaboration and data sharing mechanisms, taking into account legal obligations and confidentiality constraints, between multiple agencies. The mission identified the main climate and financial data sources and existing data gaps, proposing a preferred micro approach for climate risk assessment based on high-granularity data and two alternative options relying on more aggregate data. The micro approach is a borrower-level assessment based on geo-located bank exposure data; the alternatives rely on lower granularity or country-level exposures, possibly resulting in estimates that might be of lower precision and output of lower quality. The choice of framework should aim to strike the right balance between timeliness and quality of the analysis.