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Impact Of Climate Risk On Financial Sector Stability Of The Selected Sadc Countries

This version is not peer-reviewed.

Submitted:

31 January 2025

Posted:

03 February 2025

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Abstract

The study investigates the impact of climate risks on the financial sector stability of the selected SADC countries in the context of Angola, Malawi, Mozambique, Madagascar, Tanzania, Eswatini, Democratic Republic of Congo, Tanzania, South Africa, Madagascar, and Zambia. Countries chosen for this study face climate-related shocks such as rising annual carbon dioxide emissions, affecting their agro-based economies and negatively impacting financial stability. The study aprovides insights into the risks and challenges associated with climate risk for the selected SADC countries. The study employed Panel-Corrected Standard Errors (PCSE) and Feasible Generalized Least Squares (FGLS) models to estimate the long-run parameters of climate risks' impact on the region's financial sector stability. The research confirms a negative and statistically significant long-run relationship between climate risk and financial sector stability in the SADC region. The research found carbon dioxide emissions to be statistically significant and have a negative impact on financial stability. The study recommends integrating climate-related risk into financial, supervision, and prudential regulations. It also recommends critical interventions in creating climate risk insurance products and availing incentives towards green investments to enhance financial sector resilience.

Keywords: 
Financial Sector Stability; Non-Performing Loans; Climate Risk; SADC
Subject: 
Business, Economics and Management  -   Economics
Copyright: This open access article is published under a Creative Commons CC BY 4.0 license, which permit the free download, distribution, and reuse, provided that the author and preprint are cited in any reuse.

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