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A short article by Eva Sánchez-Villacañas, Head of Credit Risk LDP Models at Banco Santander

The risks related to environment are perceived to have an above-average impact and probability. The most urgent include climate events and extreme temperatures, the acceleration in the loss of biodiversity, air pollution and a collapse to transit to a future with low carbon fuel consumption.

According to the 2021 Global Risks report, climate change is one of the highest likelihood risks of the next ten years. In addition, the European Central Bank considers climate change as one of the extreme challenges coped with the society, and there is now comprehensive agreement that we should respond to this concern.

In view of this new environment, Financial Entities should include climate risk as part of their recurrent risk management. The integration of these elements into regular management includes the understanding of climate factors in all phases of the risk cycle: identification, measurement, inclusion in risk appetite and policies and monitoring.  All this is enclosed within an exponentially growing regulatory context. In particular, supervisors have launched Climate Stress Tests exercises to check the appropriateness of the climate risk management practices and the resilience/flexibility of the balance sheet to these risks under different scenarios.

In conclusion, climate change risk management is key for every Financial Institution. This requires a deep knowledge of the environment and the development of innovative analytical tools and risk policies that help sustainable growth.

Eva will be also joining our 15th Annual Banking Credit Risk Management Summit in February 2022 to share her insights on Estimating Probabilities of Default for Low Default Portfolios.

Eva Sánchez-Villacañas is a Head of Wholesale Credit Risk Models (Low Default Portfolio) within the Models & Data Unit at Banco Santander. She has 15 years of experience in the banking sector, combining both technical and managerial positions. In the last seven years she has been part of the Models & Data team of Banco Santander focused on Low Default Portfolios. Her main responsibilities encompass the estimation of capital, IFRS9 and Stress Test parameters, as well as the development of ranking methods. In the midst of the current demanding regulatory environment, the fluent dialogue with Supervisors is one of the most challenging aspects of her duties. In the last months, and with the aim of revamping the capital models, she has acquired a vast knowledge of the future regulation. Previously, she was part of the Structured Products Risk team at Santander from 2010 to 2015. That position gave her the opportunity to get a deep understanding of OTC Derivates and Structured Products, as well as to gain exposure to counterparty credit risk models. Prior to joining Santander, Eva was an Investment Fund analyst. Eva holds a bachelor’s degree in Mathematics from Complutense University in Madrid and a M.Sc. in Finance from Pontificia de Comillas ICAI-ICADE University.

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