How do local banks respond to natural disasters?

Anh, Quynh; Phan, Van; Nguyen, Duc Tam

doi:10.1080/1351847x.2022.2055969

Cited by 13 publications

(4 citation statements)

References 93 publications

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“…As Alexander (2014) shows, natural disasters can then lead to the instability of the banking sector, as they increase the share of nonperforming loans and bank runs. Therefore, banks can become insolvent following a catastrophe as a result of one of the following mechanisms: bank run or immediate withdrawals to replace losses, excessive provisions for loan losses, and increased borrowing demand and lower creditworthiness (Do et al 2023).…”

Section: Literature Reviewmentioning

confidence: 99%

“…They find that, in the period preceding disasters, banks that make prudent or timely provisioning decisions can respond more quickly to the new loan demands that are created by disasters and experience greater growth in their loan portfolios. Furthermore, Do et al (2023) state that banks become vulnerable when disasters occur due to the volatility of total deposits and liquidity and that banks are prone to increased provisions of loan loss which may lead to loss of their competitiveness. However, they strongly suggest that appropriate loan loss provision levels prior to disasters help mitigate climate risks without impairing capital during disasters.…”

Section: Literature Reviewmentioning

confidence: 99%

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Natural Disasters and Banking Stability

Alalmaee

2024

Economies

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This paper aims to examine the impact of natural disasters on banking stability across different levels of economic development. Utilizing bank-level data from 1242 banks in 72 countries, combined with natural disaster data from the Center for Research on the Epidemiology of Disasters, we contribute to the literature in three ways. Firstly, we directly assess the influence of natural disasters on banking stability. Secondly, we focus on bank-level data instead of country-level data. Thirdly, we expand on existing research by using different thresholds for the total number of people affected to population ratio, surpassing the previously suggested threshold of 0.5%. Our panel regression analysis with banks and year-fixed effects reveals that natural disasters significantly affect bank stability, particularly in middle- and low-income countries. These effects are robust across alternative measures and estimations, leading to higher non-performing loans, lower return on assets, and decreased capital and return on equity ratios, indicating a negative impact on bank performance.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Natural Disasters and Banking Stability

Alalmaee

2024

Economies

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“…Additionally, refs. [7][8][9] find that banks reduce their asset-side liquidity creation by reducing their lending activities. The authors of [10] suggest that in the presence of shocks from extreme weather hazards, banks may shy away from lending under the impact of an extreme weather disaster, resulting in illiquidity in the financing market.…”

Section: Related Literaturementioning

confidence: 99%

Do Natural Disasters Reduce Loans to the More CO2-Emitting Sectors?

Forte,

Sahan,

Silipo

2024

Sustainability

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We studied the impact of major floods occurring in Turkey between 2005 and 2020 on lending and the allocation of loans between sectors that differ in their CO2 emissions. Our evidence shows that the floods are not significant determinants of lending or the allocation of loans between sectors, even though CO2 emissions contribute to the reallocation of loans from the more polluting to the less polluting sectors. Indeed, risks and returns of the sector remain the main determinants of lending and of the allocation of loans among sectors. The results are robust to alternative estimation methods and specifications of the econometric models. Since in the period of investigation no environmental regulations were implemented in Turkey, and the Paris Agreement was ratified only at end-2021, the evidence suggests that more stringent regulations and green policies are required to accelerate the green transition in Turkey.

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“…Profitability of banks decreases when total deposits become volatile in cases of adverse natural occurrences, leading to increased volatility of capital and effecting the banks’ profitability (Do et al , 2022). Also, adverse environmental conditions may put borrowers, especially those in a carbon-intensive sector, into a state of lower credit worthiness, reducing the lender bank’s interest income (Hosono et al , 2016).…”

Section: Introductionmentioning

confidence: 99%

Climate change and the European banking sector: the effect of green technology adaptation and human capital

Afzal,

Hasnaoui,

Firdousi

et al. 2024

RAF

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Purpose Climate change poses effect on banking sector’s risks and profitability through adaptation of green technology. This study aims to incorporates green technology adaptation in three sectors: green banking, green entrepreneurial innovation (EI) and green human resource (HR), in a model of bank’s performance. And determines the impact of climate change on bank risk and profitability. Design/methodology/approach An assessment of profitability and risk profile of commercial banks is done for 27 European countries for 2013–2022, employing a two-step difference system-generalized method of moments estimation technique with a moderate effect of climate change by including interaction between climate change and green technology adaptation. Findings The results indicate that green banking increases profitability, reduces credit risk and increases liquidity risk. The results also show that green human resource increases profitability and becomes a source of credit and liquidity risks for the banks. Green EI increases credit risk and liquidity risk, while the effects of green EI on profitability vary with the use of two proxies: Green patents increase profitability and environment, social and corporate governance (ESG) scores decrease profitability. Practical implications Supportive government initiatives, including subsidies and tax rebates to green borrowers, may take the burden of green transition off the banking sector. Originality/value This paper observes the impact of green technology adaptation in three sectors: banks, EI and HR, moderated by climate change, adding substantially to the existing literature in conceptual framework and methodology.

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How do local banks respond to natural disasters?

Cited by 13 publications

References 93 publications

Natural Disasters and Banking Stability

Natural Disasters and Banking Stability

Do Natural Disasters Reduce Loans to the More CO2-Emitting Sectors?

Climate change and the European banking sector: the effect of green technology adaptation and human capital

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