Does climate change affect bank lending behavior?

Caglayan Aslan , Erdem Bulut, Oguzhan Cepni, Muhammed Hasan Yilmaz*

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    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
    Number of pages5
    JournalEconomics Letters
    Volume220
    Early online date29 Sept 2022
    DOIs
    Publication statusPublished - 1 Nov 2022

    Keywords

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

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