A Czech National Bank working paper finds that long-term drought exposure is associated with a significant contraction in new corporate lending. Newly originated credit declined by about 12 percent in drought-affected regions, while outstanding credit volumes adjusted more gradually. The analysis combines district-level measures of drought-related agricultural losses with almost 6 million bank-firm-month observations covering nearly 140,000 firms from 2019 to 2023. Differences across banking relationships, credit exposures and sectors suggest that banks primarily incorporate chronic physical climate risk when making new lending decisions rather than by immediately reducing existing exposures.
2026-08-27Czech National Bank
Czech National Bank study links chronic drought exposure to 12 percent decline in new corporate lending
A Czech National Bank study finds that new corporate lending declined by about 12 percent in drought-affected regions. Banks appear to account for chronic physical climate risk mainly when originating loans, while existing credit exposures adjust more gradually.