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Climate impacts on the loan quality of Chinese regional commercial banks

Author

Listed:
  • Zhang, Dayong
  • Wu, Yalin
  • Ji, Qiang
  • Guo, Kun
  • Lucey, Brian

Abstract

The objective of this paper is to investigate the impact of climate risk on the stability of regional commercial banks in China. We examine both physical and transitional risks and their potential to adversely affect loan quality. The sample for this study spans from 2010 to 2019 and includes 591 regional commercial banks in China. Our analysis reveals a positive association between higher levels of climate risk and higher levels of non-performing loans. This relationship holds true even after conducting various robustness tests. Additionally, we find that banks react to transitional policies by modifying their portfolios, as evidenced by a quasi-natural experiment of green finance reform. These findings contribute to the expanding literature on climate finance and underscore the need for regulators to consider climate risk as a critical factor in maintaining financial stability.

Suggested Citation

  • Zhang, Dayong & Wu, Yalin & Ji, Qiang & Guo, Kun & Lucey, Brian, 2024. "Climate impacts on the loan quality of Chinese regional commercial banks," Journal of International Money and Finance, Elsevier, vol. 140(C).
    • Handle: RePEc:eee:jimfin:v:140:y:2024:i:c:s0261560623001766
    DOI: 10.1016/j.jimonfin.2023.102975
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    Cited by:

    1. Rangan Gupta & Qiang Ji & Christian Pierdzioch, 2024. "Climate Policy Uncertainty and Financial Stress: Evidence for China," Working Papers 202428, University of Pretoria, Department of Economics.
    2. Cheng, Zishu & Li, Mingchen & Sun, Yuying & Hong, Yongmiao & Wang, Shouyang, 2024. "Climate change and crude oil prices: An interval forecast model with interval-valued textual data," Energy Economics, Elsevier, vol. 134(C).
    3. Xing, Xiaoyun & Guo, Kun & Zhang, Dayong & Ji, Qiang, 2024. "On the interactive effects of climate policies: Insights from a stock-flow consistent model," Applied Energy, Elsevier, vol. 358(C).
    4. Brei, Michael & Mohan, Preeya & Perez Barahona, Agustin & Strobl, Eric, 2024. "Transmission of natural disasters to the banking sector: Evidence from thirty years of tropical storms in the Caribbean," Journal of International Money and Finance, Elsevier, vol. 141(C).
    5. Wenqiang Zhu & Shouwei Li, 2024. "Nonlinear effects of climate risks on climate-sensitive sectors," Economic Change and Restructuring, Springer, vol. 57(5), pages 1-31, October.

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    More about this item

    Keywords

    Climate finance; Climate risk; Financial stability; Non-performing loans; Regional commercial banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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