The impact of climate change on banks loan portfolios and strategies for effective climate risk management

Meshel Muzuva and Daniel Muzuva
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Meshel Muzuva: MANCOSA (Honoris Universities)
Daniel Muzuva: Peta Semantics Private Limited

International Journal of Research in Business and Social Science (2147-4478), 2024, vol. 13, issue 6, 148-157

Abstract: As extreme weather events continue to impact every continent and the world moves towards establishing a lower-carbon economy, the banking industry is expected to incorporate climate risk into their risk management practices. Climate change poses significant risks to bank loan portfolios through increased physical and transition risks. This study systematically analysed the literature to identify effective strategies for managing these risks. Our findings reveal that climate-related events can lead to substantial loan defaults and credit losses. To mitigate these impacts, banks can integrate climate risk into their risk management frameworks, adopt sustainable lending practices, and diversify their portfolios. Some banks have already implemented measures to mitigate climate risk through insurance policies, while others are incorporating sustainability criteria into their lending practices, such as financing green projects. By proactively addressing climate risks, banks can protect their portfolios, enhance financial resilience and contribute to a low-carbon economy. Key Words:Climate Risk; Green Financing; Loan Portfolios

Date: 2024
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