The Nexus of climate crisis and asset liability management in frontier economies

Wendai Lv, Nawazish Mirza, Muhammad Umar and Wei Chen

Technological Forecasting and Social Change, 2023, vol. 192, issue C

Abstract: Climate change is a pressing issue that is disrupting the economic systems through financial and monetary impairment. The extent is more severe in the frontiers markets and compliance with the COP26 agenda is the only recourse for low-income economies. The banks play a critical role in such countries to finance business operations and incorporating sustainability practices in asset liability management can ensure financial resilience. In this paper, we assess if climate change has any impact on the mortgage portfolio and deposit mobilization of the banking sector. Using a comprehensive sample of 175 banks across twenty-three frontier markets and employing data between 2011 and 2021, we found that climate risk is negatively associated with mortgage exposure and deposit growth. We argue that the impact on mortgages is via physical risk while for deposit mobilization the pressure emanates from transitional factors. The results remained robust even after differentiating the banks into big and small categories suggesting that climate change is bringing in risks that will impact the financial sector without any discrimination. The paper has important implications for both transitional and physical risks related to climate change.

Keywords: Climate change; Mortgages; Deposit mobilization; Physical risks; Transitional risks (search for similar items in EconPapers)
JEL-codes: G18 G21 Q54 Q56 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:tefoso:v:192:y:2023:i:c:s0040162523002718

DOI: 10.1016/j.techfore.2023.122586

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