阿尔巴尼亚银行业气候转型风险压力测试框架

for the Banking Sector in AlbaniaPublic Disclosure Authorized NOVEMBER 2025 Table of Contents AcknowledgementsAcronymsList of Figures455 Executive summary6 1.Introduction8 2.Methodological approach12 2.1Macroeconomic model2.2Credit risk satellite model2.3Stress test model131718 3.Low-carbon transition scenarios for Albania19 4.Macroeconomic and sectoral impacts of low-carbontransition scenarios22 5.Financial sector impacts of low-carbon transition scenarios24 5.1Data5.2Results2426 6.Conclusions and policy implications29 Appendix 1:Sectoral aggregation and disaggregationAppendix 2:Stress test frameworkAppendix 3:Robustness check using an OLS specification313233 Acknowledgements The report was developed jointly by the Bank of Albania and the World Bank. The Bank of Albania team included Natasha Ahmetaj (Second Deputy Governor),Klodion Shehu (Director of Financial Stability Department), Altin Tanku (Directorof Research Department), Besa Kokallaj (Vorpsi) (Economist), Sibora Kola(Economist), Meri Papavangjeli (Senior Economist), Adelina Shella (Head ofDivision), Margerita Topalli (Head of Division), and Ilir Vika (Head of Division). The World Bank team responsible for this report was composed of Milica Nikolic(team lead), Thi Thanh Bui, Nepomuk Dunz, Martin Hafner-Guth, and CharlJooste under the guidance of Frederico Gil Sander, Martha Martinez Licetti, VaheVardanyan, and Saskia de Vries. The report was designed by Kane Chong. This work is a product of the staff of The Bank of Albania and the World Bank.The findings, interpretations, and conclusions expressed by Bank of Albania andWorld Bank teams in this work do not necessarily reflect the views of The Bank ofAlbania and The World Bank. Acronyms List of Figures Executive summary This first climate transition risk stress test for the Albanianbanking sector assesses the macroeconomic and financialsector implications of Albania’s shift to a low-carbon economyunder different climate policy scenarios. It builds upon earlier exposure analyses conducted for the Albanian banking sector,1which identifiedthe main climate-related risks and transmission mechanisms impacting financial institutions. Byquantifying the potential impact of transition risks, this analysis contributes to the Bank of Albania’sbroader efforts to deepen understanding of climate-related financial risks. The focus here is onhow the banking sector may adjust to economic changes stemming from the introduction of acarbon tax, which is used as a representative proxy for a wider set of transition-related policies.This analysis serves as an initial step in assessing climate risks, laying the groundwork for morecomprehensive future assessments. It will be followed by further work, including an assessment ofclimate physical risks. Three climate transition scenarios were evaluated against a baseline, overall projecting mildnegative impacts on GDP by 2030.2The orderly NDC scenario results in the least disruption. In thisscenario, a gradually introduced carbon tax incentivizes low-carbon technologies, but also leadsto higher production costs, modest inflation, and a slight decline in domestic consumption andexports. In contrast, the disorderly and adverse disorderly transition scenarios feature abrupt andsteeper policy shifts. These trigger stronger inflationary pressures and tighter monetary policy,resulting in more significant GDP contractions and sectoral disruptions, particularly in energy-intensive and household-sensitive sectors such as Agriculture, Real estate, and Other services. Financial sector risks were assessed through credit risk stresstesting.The results suggest that the banking system remainsbroadlyresilient,with limited increases in NPL ratios andmanageable reductions in capital adequacy, especially under theorderly transition. However, under disorderly transitions, especiallyin the adverse scenario, credit risk tends to be higher in sectorssuch as Industry, Trade, and Construction. In the absence of policymeasures, this scenario could pose the most significant challengesto the economy and the financial system. The impact on individualbanks will vary depending on the mix of loans in their portfolios.While Agriculture is among the most affected sectors, its minimalexposure in bank portfolios limits systemic risk. This exerciserepresents afirst step andan importantlearning processin quantifyingclimate-relatedfinancial risksfor the bankingsector. Albania’s resilience is partly attributed to its strong reliance onrenewable energy and its relatively moderate climate targets by2030.These factors create opportunities for the banking sector toactively support the transition by financing green investments, suchas electric buses and charging infrastructure in cities in the Transportsector, carbon capture and storage (CCS) in cement factories inIndustry, or green-certified new construction in Real estate. It is important to note that the analysis is based on several simplifying