When faced with reality: How extreme weather events influence bank lending

Authors:

• Domen Pavlič, Banka Slovenije and University of Ljubljana, School of Economics and Business
• Matjaž Volk, Banka Slovenije
• Matej Marinč, University of Ljubljana, School of Economics and Business

Keywords:

Extreme weather events | Bank lending | Floods | Borrowing conditions | Climate risks

Abstract:

We combine precise geolocation data on firms with detailed loan-level information to examine how an extreme weather event influences banks’ perceptions of climate-related risks. We focus on the severe flooding that occurred in Slovenia in August 2023 and analyse changes in the borrowing terms offered to firms situated in flood-prone areas that were not directly affected by the disaster. We find that banks revise their assessment of climate risk following the flood, as evidenced by tighter lending conditions for exposed firms. Specifically, high-risk firms experience a decline in outstanding loan amounts and an increase in borrowing costs. We also find some evidence that the impact is more pronounced for loans with short maturity and no collateral and less pronounced for firms with a relationship with a single bank.

The Sustainable Development Goals (SDGs) addressed in the article are:

• SDG 13 – Climate action

The article is published in:
Research in International Business and Finance (ScienceDirect)

The content is freely accessible at:

When faced with reality: how extreme weather events influence bank lending