Journal of Credit Risk
ISSN:
1744-6619 (print)
1755-9723 (online)
Editor-in-chief: Linda Allen and Jens Hilscher
Need to know
- Climate change poses material risk to the value of financial assets through credit risk channel.
- The transition-risk exposures of Polish banks remain particularly pronounced in a few climate-relevant sectors, with the exposure to the mining, manufacturing and electricity sectors representing around 31% of the total corporate loan portfolio.
- Banks exposed to climate-policy-relevant sectors are more sensitive to changes in climate-related variables, namely carbon and coal prices, and are thus subject to a higher credit risk than those exposed to lower carbon emitting sectors.
Abstract
Climate change poses several risks to the value of financial assets and to financial stability. In this study, we capture climate-related financial risks by exploring credit risk channels from a bank perspective. First, we estimate the exposure of the Polish banking sector to climate risks that may arise from a disorderly transition to a carbon-neutral economy. Then, we translate changes in climate-related variables into changes in banks’ balance-sheet losses.We provide empirical evidence of the heterogeneous effect of energy-related variables on the quality of loans in various sectors of the economy. Our results show that banks exposed to climate-policy-relevant sectors are more sensitive to changes in environmental risk drivers and are thus subject to a higher credit risk than those exposed to less carbon emitting sectors.
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