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How Does Climate Policy Uncertainty Affect Banks Loan Loss Provisions?—Evidence From China

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  • Yonghui Lian
  • Jie Li
  • Feng He

Abstract

This study examines the impact of climate policy uncertainty (CPU) on banks' loan loss provisions. Using a sample of 63 listed commercial banks in China from 2007 to 2022, we find that CPU significantly increases banks' loan loss provisions. Banks with higher financial risk and greater climate risk exposure tend to increase their loan loss provisions in response to CPU. This effect is less pronounced for banks with a higher degree of digital transformation, banks with better ESG performance, banks with green commitment, and banks disclosing more substantial climate information. Our findings provide empirical evidence for the importance of reducing CPU by government and regulators from banks' risk management perspective.

Suggested Citation

  • Yonghui Lian & Jie Li & Feng He, 2025. "How Does Climate Policy Uncertainty Affect Banks Loan Loss Provisions?—Evidence From China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(5), pages 3039-3066, July.
    • Handle: RePEc:wly:mgtdec:v:46:y:2025:i:5:p:3039-3066
    DOI: 10.1002/mde.4511
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    3. Guo, Chenyu & Zhang, Yiming & Gao, Hao & Wu, Xinkai & Lv, Rongjie, 2025. "Supply chain shareholding, climate policy uncertainty and total factor productivity of enterprises," Finance Research Letters, Elsevier, vol. 85(PB).

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