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Climate Transition Risks and Bank Lending: Evidence from Colombia

Author

Listed:
  • Camilo Bohorquez-Penuela
  • Joëlle Noailly
  • Naël Shehadeh

Abstract

How is bank lending to fossil fuel firms affected when risks of stranded assets increase? Using loan-level data from the credit registry of the Colombian Superintendency of Finance, we examine how the introduction of the Paris agreement has affected lending to fossil firms, in a country highly dependent on them. We find evidence that the increased risk of stranded assets implied by the Paris agreement led to a 46\% decrease in bank credit to fossil firms. However, banks have become more selective and have prioritised lending to large and well capitalised fossil firms. Additionally, there is suggestive evidence that "brown" banks (i.e., banks with large lending to fossil fuel firms) have become more selective with their clients: they decreased the size of loans to both fossil and non-fossil clients (-87%), whilst increasing the cost of loans to all clients (via an interest rate of 2.15 percentage point higher), but keeping on lending to large fossil fuel firms (+14.8%) **** RESUMEN: ¿Cómo se ve afectado el crédito bancario hacia las empresas de combustibles fósiles cuando aumentan los riesgos de activos varados? Utilizando datos a nivel de balances del registro de créditos comerciales de la Superintendencia Financiera de Colombia, examinamos cómo la introducción del acuerdo de París ha afectado el crédito a las empresas de combustibles fósiles en un país altamente dependiente de ellos. Encontramos evidencia de que el aumento del riesgo de activos varados implícito en el acuerdo de París llevó a una disminución del 46% en el crédito bancario a las empresas de combustibles fósiles. Sin embargo, los bancos se han vuelto más selectivos y han priorizado el préstamo a empresas de combustibles fósiles grandes y bien capitalizadas. Además, los resultados sugiere que los bancos ``cafés" (i.e., aquellos con gran cantidad de préstamos a empresas de combustibles fósiles) se han vuelto más selectivos con sus clientes: disminuyeron el tamaño de los préstamos (-87%) y aumentaron el costo a través de la tasa de interés (2,15 pp.) a todos sus clientes en relación al resto de bancos, pero continuaron prestando a las grandes empresas de combustibles fósiles (+14,8%) relativo al resto de empresas.

Suggested Citation

  • Camilo Bohorquez-Penuela & Joëlle Noailly & Naël Shehadeh, 2024. "Climate Transition Risks and Bank Lending: Evidence from Colombia," Borradores de Economia 1294, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1294
    DOI: 10.32468/be.1294
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    References listed on IDEAS

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    1. Hans Degryse & Tarik Roukny & Joris Tielens, 2020. "Banking barriers to the green economy," Working Paper Research 391, National Bank of Belgium.
    2. Jiménez, Gabriel & Mian, Atif & Peydró, José-Luis & Saurina, Jesús, 2020. "The Real Effects of the Bank Lending Channel," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 115, pages 162-179.
    3. Christophe McGlade & Paul Ekins, 2015. "The geographical distribution of fossil fuels unused when limiting global warming to 2 °C," Nature, Nature, vol. 517(7533), pages 187-190, January.
    4. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2012. "Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 102(5), pages 2301-2326.
    5. Gómez, Esteban & Murcia, Andrés & Lizarazo, Angélica & Mendoza, Juan Carlos, 2020. "Evaluating the impact of macroprudential policies on credit growth in Colombia," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Climate fnance; banks; fossil fuel frms; Paris Agreement; stranded assets; sustainable lending; Financiamiento climático; bancos; empresas de combustibles fósiles; acuerdo de París; activos varados; créditos sostenibles;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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