Does Climate Change Affect Bank Lending Behavior?

Çağlayan Aslan, Erdem Bulut, Oguzhan Cepni, Muhammed Hasan Yılmaz*

*Corresponding author for this work

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Abstract

We examine how banks adjust credit supply in areas with higher exposure to climate risks by utilizing the province-level air pollution and loan growth data of a large emerging market, Turkey, following the Paris Agreement in 2015. Our results show that banks limit their credit extension to more polluted provinces in the post-agreement interval, implying that banks consider climate change-related risks and adjust their credit provisioning accordingly. Our baseline findings are intact against a myriad of robustness checks. We also find that the shift in the climate risk-credit provisioning nexus is asymmetric depending on the levels of air pollution.
Original languageEnglish
Article number110859
JournalEconomics Letters
Volume220
Number of pages5
ISSN0165-1765
DOIs
Publication statusPublished - Nov 2022

Keywords

  • Air pollution
  • Climate change
  • Paris agreement
  • Bank loans
  • Financial stability

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