MOODY’S Investor Services has warned that South African banks were among 49 banks across 14 African countries with huge exposure to environmentally sensitive industries.
In a report released yesterday, Moody’s said banks in South Africa were facing environmental risks through extensive lending to the mining industry.
The report said that many of Africa's largest industries, such as oil and gas, mining and transport, faced high environmental risks, given their high exposure to carbon transition or physical climate risk.
The report said trade, industry, manufacturing, farming and fishing had more moderate climate change-related credit risk on a global scale.
Tourism, on the other hand, was considered as having a low environmental risk globally, although the sector in Africa was facing the threat of severe income loss from natural disasters.
The report said that South African banks had an equivalent of 3.7 percent of their total loans on mining, 2.6 percent on oil and gas, and 3.5 percent on transportation.
Agriculture constituted a total of 7.4 percent of loans by South African banks.
Moody’s said the proportion of mining loans to total loans was at 1.5 percent.
However, it said exposure among the rated banks was higher, at about 4.3 percent, including 0.6 percent to the very high-risk category, coal.
“Among our rated banks in Africa, South African banks have extended the largest volume of loans to mining, at about $16.8 billion (R250bn), compared with $233 million for Democractic Republic of Congo banks, $139m for Kenyan banks and $122m for Angolan banks,” it said.
“However, the loan books of South African banks are well diversified, keeping sectoral percentages low.”
Overall, Moody’s said African banks had extended almost $218bn in loans to these high-risk sectors, representing almost 29 percent of their total loan portfolio.
Moody’s said environmental factors would lead to a deterioration of the banks' credit quality and profitability in the long term.
Moody’s associate managing director Antonello Aquino said African banks’ credit quality and profits would deteriorate if banks did not take measures prudently to manage climate-related and environmental risks.
“Banks in Nigeria, South Africa and Democratic Republic of the Congo are most exposed to climate-related and environmental risks through their lending, which, if not properly managed, could drive a decline in their credit quality longer term,” Aquino said.
“These risks are also exacerbated by banks’ large holdings of government securities, which, in turn, are exposed to environmental risk from rising temperatures, water scarcity and carbon transition.”
The Banking Association of South Africa will next week hold a webinar on climate change risk management practice in the financial sector, including recommendations for climate change disclosure by the sector.
siphelele.dludla@inl.co.za
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