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Two workers in an underground mine.
African banks are exposed to environmental risks that can threaten their creditworthiness and profitability as climate change makes crises more frequent and severe, according to Moody’s Investors Service.
Moody’s estimates that the 49 banks it rates in 14 African countries have extended almost $ 218 billion in credit to environmentally sensitive sectors, an amount equivalent to almost 29% of their total loans.
The threats to the mainland’s banks are exacerbated by their huge holdings of sovereign bonds, particularly to lenders from Angola and Nigeria, Moody’s analysts, including Malika Takhtayeva and Peter Mushangwe, said in a report on Tuesday.
Most African sovereigns face substantial risk from rising temperatures, water scarcity and the carbon transition, they said.
Here are other comments from Moody’s:
- “We expect environmental factors to lead to a deterioration in the credit quality and profitability of banks in the long term if banks do not take steps to manage environmental and climate-related risks prudently.”
- Moody’s findings indicate that many of Africa’s largest industries, such as oil and gas, mining and transportation, face major environmental threats, given their high exposure to carbon transition or physical climate risk.
- Banks in the Democratic Republic of the Congo and South Africa have been making loans to the mining industry; Banks in Uganda are heavily exposed to agriculture and fishing, making them vulnerable to droughts and other consequences of climate change.
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