Moody’s is sounding the alarm because banks in South Africa are exposed to climate change through extensive mining loans

Two workers in an underground mine.

According to Moody’s Investors Service, African banks are exposed to environmental risks that can threaten their credit quality and profitability as climate change makes shocks more frequent and more severe.

Moody’s estimates that the 49 banks it rated in 14 African countries have lent nearly $ 218 billion to environmentally sensitive sectors, accounting for nearly 29% of their total lending.

The threats to the continent’s banks are compounded by their oversized holdings of government bonds, particularly Angolan and Nigerian lenders, Moody’s analysts, including Malika Takhtayeva and Peter Mushangwe, said in a report Tuesday.

Most African countries are at significant risk from rising temperatures, water scarcity and carbon transition, they said.

Here are more comments from Moody’s:

  • “We assume that, in the long term, environmental factors will lead to a deterioration in the credit quality and profitability of banks if the banks do not take measures to deal prudently with climate and environmental risks.”
  • Moody’s results indicate that many of Africa’s largest industries, such as oil and gas, mining and transportation, face high environmental threats due to their high exposure to carbon transition or physical climate risk.
  • Banks in the Democratic Republic of the Congo and South Africa have made large loans to the mining industry; Banks in Uganda are heavily exposed to agriculture and fishing, making them vulnerable to droughts and other effects of climate change.

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