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The Shocks of Climate Change on Bank Loans

Author

Listed:
  • Agus Sugiarto

    (Financial Services Authority of Indonesia, Indonesia.)

  • Ni Nyoman Puspani

    (Financial Services Authority of Indonesia, Indonesia.)

  • Mustika Septiyas Trisilia

    (Financial Services Authority of Indonesia, Indonesia.)

Abstract

Climate change poses new challenges to the banking sector. Thus, in this paper, we investigate the effect of climate change on bank loans using panel data covering 7,865 banks in Indonesia from 2011-2021. We define bank loans into three variables, i.e., outstanding credit, non-performing loans (NPLs), and interest rates. Our results suggest that, of the six climate-related disasters, the flood has a significant and consistent effect. An increase in the frequency of floods reduces credit and increases NPLs. Consistent results are found for disaster risk index scores. The empirical results show that there is a negative effect of climate change on bank loans so further policies from banks and regulators' side are needed.

Suggested Citation

  • Agus Sugiarto & Ni Nyoman Puspani & Mustika Septiyas Trisilia, 2023. "The Shocks of Climate Change on Bank Loans," International Journal of Energy Economics and Policy, Econjournals, vol. 13(5), pages 493-514, September.
    • Handle: RePEc:eco:journ2:2023-05-54
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Climate Change; Financial Risk; Panel Data;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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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