Climate-Related and Environmental Risks for the Banking Sector in Latin America and the Caribbean : A Preliminary Assessment
There is increasing recognition that climate-related and environmental risks are a source of financial risks. Using publicly available data, this paper attempts a preliminary estimation of the physical and transition risks for the banking sector in...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/265231623356999217/Climate-Related-and-Environmental-Risks-for-the-Banking-Sector-in-Latin-America-and-the-Caribbean-A-Preliminary-Assessment http://hdl.handle.net/10986/35764 |
| Summary: | There is increasing recognition that
climate-related and environmental risks are a source of
financial risks. Using publicly available data, this paper
attempts a preliminary estimation of the physical and
transition risks for the banking sector in a sample of
economies in Latin America and the Caribbean. The results
show that exposure to floods, compounded by high loan
concentration in and around countries’ capital cities,
represents the most important source of credit risk for the
banking sector. After large-scale natural disasters, banks’
nonperforming loans increase by up to 1.4 percentage points
in affected provinces. The results also show that banks in
the region are exposed to transition risks, especially in
Argentina, Bolivia, Paraguay, and Uruguay, due to their high
lending to the agriculture sector, which is the largest
emitter of greenhouse gases in the countries. Firms
operating in transition-sensitive sectors already present
signs of financial stress, especially those in the fossil
fuel and agriculture sectors. Overall, the results
demonstrate the importance for financial authorities in the
region to advance in the integration of climate-related and
environmental risks in their work. |
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