Effect of climate-related risk on the costs of bank loans: Evidence from syndicated loan markets in emerging economies

Kelvin Ho and Andrew Wong

Emerging Markets Review, 2023, vol. 55, issue C

Abstract: Based on a novel dataset that combined syndicated loans originated in the emerging market economies with greenhouse gas emission intensity data of borrowers, this study examines whether and to what extent banks in these emerging markets have factored in climate transition risk in their lending decisions. On loan pricing, our results suggest that banks in these emerging markets have started to price-in climate transition risk for loans to emissions-intensive sector since the Paris Agreement. This could reflect their increased awareness of a climate-transition risk towards such firms. The extent of the transition risk premium is also found to be dependent on the environmental attitude of banks. Specifically, green banks are found to charge a higher loan spread than other banks, when lending to the same brown firm after the Paris Agreement. Apart from pricing a transition risk premium in the loan spread, we find evidence that banks may also consider imposing more stringent non-pricing contractual terms, such as shortening loan tenor and imposing collateral requirement, on brown firms especially when the associated credit risk impacts on these firms are more uncertain.

Keywords: Carbon emissions; Emerging markets; Cost of bank loans; Green banks (search for similar items in EconPapers)
JEL-codes: G21 G32 Q5 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1566014122000942
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:55:y:2023:i:c:s1566014122000942

DOI: 10.1016/j.ememar.2022.100977

Access Statistics for this article

Emerging Markets Review is currently edited by Jonathan A. Batten

More articles in Emerging Markets Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().