Flooded credit markets: physical climate risk and small business lending

Luca Barbaglia, Serena Fatica and Caterina Rho

No 186, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: We document that banks charge higher interest rates on loans granted to European small and medium-sized firms located in areas at high risk of flooding. The risk premium, at 6.4 basis points on average, rises with loan duration, and in the case of smaller borrowers and local specialised banks. By contrast, at-risk firms that rely heavily on intangible and movable assets do not face a higher cost of credit, reflecting lower vulnerability to physical risk. Realised flood risk increases SMEs’ financial vulnerability, as firms in flooded counties are more likely to default on their loans than non-disaster borrowers.

Keywords: climate change; loan default; loan pricing; natural disasters (search for similar items in EconPapers)
JEL-codes: D81 E22 E44 F21 G24 (search for similar items in EconPapers)
Pages: 61
Date: 2024-07
New Economics Papers: this item is included in nep-ban, nep-ent, nep-env, nep-sbm and nep-ure
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Related works:
Working Paper: Flooded credit markets: physical climate risk and small business lending (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wmofir:186

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