The impact of climate change on credit portfolios and banking resilience: Preliminary evidence from a developing economy

IF 7.5 1区经济学 Q1 BUSINESS, FINANCE

International Review of Financial Analysis Pub Date : 2025-02-21 DOI:10.1016/j.irfa.2025.104021

Muhammad Umar , Nawazish Mirza , Monica Violeta Achim , Samuel Ribeiro-Navarrete

{"title":"The impact of climate change on credit portfolios and banking resilience: Preliminary evidence from a developing economy","authors":"Muhammad Umar , Nawazish Mirza , Monica Violeta Achim , Samuel Ribeiro-Navarrete","doi":"10.1016/j.irfa.2025.104021","DOIUrl":null,"url":null,"abstract":"<div><div>This study investigates the impact of climate change on credit portfolios and banking resilience in Pakistan, a developing economy with significant exposure to environmental risks. We employ a stress-testing methodology to evaluate the effects of various climate change scenarios on banking firms, ranging from low to high emissions. Specifically, using data from 2011 to 2022, we assess the credit exposure of key sectors by linking macroeconomic variables such as GDP growth and temperature changes to credit infections and the probability of default. Our findings reveal that rising temperatures significantly increase financial vulnerabilities, leading to a notable degradation of asset quality and an increase in default likelihood. Due to its reliance on water-intensive processes, the textile sector is particularly prone to climate-induced disruptions, resulting in higher default risks. These results highlight the importance of integrating climate risk assessments into banking practices, focusing on sector-specific strategies to enhance financial stability.</div></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":"102 ","pages":"Article 104021"},"PeriodicalIF":7.5000,"publicationDate":"2025-02-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Review of Financial Analysis","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1057521925001085","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}

引用次数: 0

Abstract

This study investigates the impact of climate change on credit portfolios and banking resilience in Pakistan, a developing economy with significant exposure to environmental risks. We employ a stress-testing methodology to evaluate the effects of various climate change scenarios on banking firms, ranging from low to high emissions. Specifically, using data from 2011 to 2022, we assess the credit exposure of key sectors by linking macroeconomic variables such as GDP growth and temperature changes to credit infections and the probability of default. Our findings reveal that rising temperatures significantly increase financial vulnerabilities, leading to a notable degradation of asset quality and an increase in default likelihood. Due to its reliance on water-intensive processes, the textile sector is particularly prone to climate-induced disruptions, resulting in higher default risks. These results highlight the importance of integrating climate risk assessments into banking practices, focusing on sector-specific strategies to enhance financial stability.

查看原文本刊更多论文

求助全文

约1分钟内获得全文求助全文

来源期刊

International Review of Financial Analysis BUSINESS, FINANCE-

CiteScore

10.30

自引率

9.80%

发文量

366

期刊介绍： The International Review of Financial Analysis (IRFA) is an impartial refereed journal designed to serve as a platform for high-quality financial research. It welcomes a diverse range of financial research topics and maintains an unbiased selection process. While not limited to U.S.-centric subjects, IRFA, as its title suggests, is open to valuable research contributions from around the world.