The Central Bank of Oman (CBO) has warned that climate change could pose a threat to Oman’s financial system, potentially in the form of direct physical shocks as well as inherent risks during the country’s transition to a low-carbon economy.
The apex bank listed climate change, alongside cybersecurity, as emergent risks to the country’s financial stability. The caution came in the banking sector regulator’s Financial Stability Report 2022 published here on Sunday.
“Climate change risks present severe concerns to the financial system posing micro and macroprudential risks,” said the Central Bank report. “There is a growing awareness and concerns about the implications of climate change on the financial stability as it poses two major types of risks, the first is its direct physical impact leading to infrastructure and property damages and the second is the transition risks such as changes in climate policy, technology and consumer and market sentiments.”
Compounding this risk for hydrocarbon-dependent countries like the Sultanate of Oman is the exposure to challenges in its efforts to reduce its carbon footprint, the report noted.
The Central Bank explained: “A large part of Oman’s GDP relies on the production and export of hydrocarbons that are a major source of greenhouse gases. Therefore, besides the climate risks faced by all other countries, phasing out carbon emissions would entail a need for massive changes in the structure of the economy.”
Assessing climate risks, the financial sector watchdog further acknowledged, represents a challenge in itself because of “difficult-to-predict shocks and significantly long time horizon spanning over decades for modelling and analysis of transition risks”.
The Central Bank nevertheless pledged to “keep a close eye” on climate change risks, as well as build its capabilities to formally incorporate these risks in its assessment of financial stability.
Experts have warned that the Sultanate of Oman is vulnerable to severe climate change impacts if rising global temperatures are not reined in. These threats will manifest in the form of extreme hot weather, destruction cyclones and flash flooding, rising aridity and other impacts to water availability, agriculture and health.
For its part, Oman has committed to reducing greenhouse gas emissions in line with its pledges under the Paris Agreement. It has also announced a landmark pivot away from fossil fuels and towards green energies, notably renewables and green hydrogen, to power its future economy.
In its report, the Central Bank also singled out cybersecurity as an issue of priority concern particularly as the economy embraces financial technology (fintech) and potentially digital assets as well.
“The financial sector is a prime target for cybercriminals to attack due to the potential for large gains,” the report warned.
“Besides cyberattacks, operational issues that may disrupt the provision of financial services also remain an important challenge because such disruptions from either cyberattacks or operational breakdowns may not only cause financial losses but may also shake the trust of the customers in the digital financial services or even the entire financial sector.”
To this end, the apex bank has pledged to continue to invest in operational redundancies, cybersecurity technologies and competent staff. It is also preparing to collaborate with domestic and international partners to “strengthen the resilience of the financial system and reinforce the capacity of the financial sector to mitigate and recover from cyberattacks”, it added.
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