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Banking Sector Exposures to Climate Risks - Overview of Transition Risks in the Hungarian Corporate Loan Portfolio

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  • Renato Ritter

    (Magyar Nemzeti Bank)

Abstract

Risks arising from climate change can have a serious impact on the operation of the financial system. In this study, the credit exposures of banks and bank branches operating in Hungary are assessed using two methodologies. To put the results of the analysis into context, they are compared with the results of the survey conducted by the European Banking Authority using the same methodologies. Based on both methodologies, Hungarian institutions may be exposed to the negative effects of climate change at a higher rate than their counterparts in the European Union. Using the two methods together, risk groups were formed, on the basis of which 1.2 per cent of Hungarian institutions were classified in the upper quartile and more than 55 per cent of the banking system was classified in the upper middle quartile. The methods presented can help not only assess the banking system's transition exposures at the systemic level, they can also be used to assess corporate credit exposures at the institutional level.

Suggested Citation

  • Renato Ritter, 2022. "Banking Sector Exposures to Climate Risks - Overview of Transition Risks in the Hungarian Corporate Loan Portfolio," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(1), pages 32-55.
    • Handle: RePEc:mnb:finrev:v:21:y:2022:i:1:p:32-55
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    References listed on IDEAS

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    1. Roncoroni, Alan & Battiston, Stefano & Escobar-Farfán, Luis O.L. & Martinez-Jaramillo, Serafin, 2021. "Climate risk and financial stability in the network of banks and investment funds," Journal of Financial Stability, Elsevier, vol. 54(C).
    2. N/A, 2015. "The UK Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 234(1), pages 3-3, November.
    3. N/A, 2015. "The UK economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 231(1), pages 3-3, February.
    4. Robert Vermeulen & Edo Schets & Melanie Lohuis & Barbara Kolbl & David-Jan Jansen & Willem Heeringa, 2018. "An energy transition risk stress test for the financial system of the Netherlands," DNB Occasional Studies 1607, Netherlands Central Bank, Research Department.
    5. N/A, 2015. "The UK economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 232(1), pages 3-3, May.
    6. N/A, 2015. "The UK Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 233(1), pages 3-3, August.
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    Cited by:

    1. Balint Vargedo, 2022. "Climate Stress Test: The Impact of Carbon Price Shock on the Probability of Default in the Hungarian Banking System," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(4), pages 57-82.

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    More about this item

    Keywords

    climate change; transition risk; sectoral exposure; greenhouse gas intensity;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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