African Banks Face $218 Billion of Climate Change Risk

(Bloomberg) -- African banks are vulnerable to the increasing frequency and severity of climate change shocks unless lenders take action to manage these risks, Moody’s Investors Service said in a report.

Moody’s estimates that the 49 banks it rates across 14 African countries have extended almost $218 billion in credit to environmentally sensitive sectors, an amount equivalent to nearly 29% of their total loans, Moody’s analysts including Malika Takhtayeva and Peter Mushangwe wrote.

The transport, oil and gas, and mining industries are particularly exposed to changes in the physical environment, and to the shift to low-carbon technologies. They also face pressure from investors to show how they’ll be affected by climate change.

“For African banks, disclosure of the risks they face and management of those risks are not yet well advanced,” the analysts wrote. “We expect environmental factors will lead to a deterioration of the banks’ credit quality and profitability in the long term if banks do not take measures to prudently manage climate-related and environmental risks.”

Banks in Nigeria, Democratic Republic of the Congo and South Africa are the most exposed to these risks. In addition, “outsized holdings” of sovereign bonds are a particular concern for some lenders, as most countries on the continent face substantial risk from rising temperatures, water scarcity and carbon transition.

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