In recent years, the tendency to identify the risks that climate change represents in the countries is higher. Different natural events such as rising sea levels, forest fires, floods, droughts, among others, and also global warming, increasingly worsen the credit quality of various geographical regions of Latin America.
so assured Moody’s Investors Servicein its latest report, where it also addresses the physical risks of climate change in Latin America and how it is particularly significant for industries with fixed assets, such as mining, oil and gas, ports, and utilities.
(Climate change threatens Latin American cities).
According to the document, the region faces multiple risks stemming from a climate that is constantly changing. This makes special reference to“Industries with fixed operating assets, more frequently interrupt operations while tightening supply chains for the logistics and infrastructure, agriculture, mining, fishing, power generation, water utilities and telecommunications sectors.”
Similarly, with regard to banks, they face indirect risks in their investment and loan portfolios, affecting banking in the region.
For Moody’s Investors ServiceBrazilian banks have contained exposure to corporate borrowers with high physical weather risk, at least 11% of total loans, while some regional banks have higher exposures to rural loans.
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Compared to Mexico, the report deduces that although the country’s agricultural producers are more susceptible to climate-related events, the financing of agriculture and livestock represents only 2% of the total credit in its banking system.
In the case of Chile, water stress complicates mining, agricultural and hydroelectric operations. Thus, this country has little overall exposure to agribusiness or mining borrowers, but agribusiness accounts for nearly 13% of total bank lending today.
In turn, Peruvians have balanced distributions of credit operations without particular concentrations of high exposure risk.
Loans to the mining industry represented only 3.8% of the banks’ combined loan portfolio as of March 2022, and loans to agribusiness represented 5.9%.
(Without climate change policies, 8% of GDP would be lost by 2100).
For Barbara Mattos, senior vice president of Moody’s, “The region’s banks face indirect risks from their investment and loan portfolios.”
Sustainability.
According to the document, Colombia faces a growing risk of ocean disturbances, directly threatening power generation.
For the firm, the country generates around 72% of its electricity from hydroelectric power, so its public services are significantly exposed to climatic events that affect precipitation levels, such as the La Niña and El Niño phenomena.
However, it is evident that the exposure of the loan portfolio of Colombian banks to the agricultural industry is greater than that of their Peruvian peers, but lower than that of Brazil or Argentina.
Regarding the exposure of the banks, it shows that, to the total portfolio of loans to agribusiness in March 2022, the percentage corresponded to 2.3% less than in Argentina Chile, Brazil and Peru, but more than in Mexico. For its part, mining presented 0.8% of credit operations. In terms of transportation, credit exposure was 5.0%, contrary to energy, gas and water supply, which reached 8.8%.
“Flooding and extreme rainfall pose a moderate risk of extreme weather affecting companies and sectors doing business with Colombian banks, but adequate bank reserves, at 6.3% of gross lending as of March 2022, will cover potential credit losses and provided adequate principal protection.”they affirm.
– When it comes to large banks in Colombia, they have low exposure to physical weather risks, whether they focus on mortgages or consumer finance.
– These are Banco Davivienda, BBVA Colombia, Banco de Bogotá, as well as Bancolombia.
– However, in the case of Banco GNB Sudameris, it has a greater exposure to physical climate risk, with the agricultural segment representing around 12% of total consolidated loans in March 2022.
DIANA K. RODRIGUEZ T.
Journalist Portfolio
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