Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271527 
Year of Publication: 
2023
Series/Report no.: 
KBA Centre for Research on Financial Markets and Policy Working Paper Series No. 66
Publisher: 
Kenya Bankers Association (KBA), Nairobi
Abstract: 
This paper offers a climate change vulnerability assessment of the Kenyan banking sector by examining the time-varying linkages of climate risk drivers, economic sectors that get impacted by a disorderly low-carbon transition (climate policy relevant sectors (CPRSs)), and banking sector stability. We use temperature and precipitation climate data, identify 5 CPRSs and their quarterly outputs, construct a banking sector stability index, and examine the time-varying linkages of these variables. Effectively, we assess the response of banking sector stability to sectoral output shocks arising from physical and transition risks. Three important findings emerge: First, the agriculture sector is the sole channel of physical climate risk transmission. Second, manufacturing and utilities sectors are becoming increasingly critical/significant channels for transmitting transition risks. Third, during the COVID-19 era, all CPRSs have become increasingly linked to banking sector stability, effectively exacerbating the transmission of climate risks to the banking sector.
Subjects: 
climate change
climate risk drivers
climate policy relevant sectors (CPRS)
banking sector
stability
Document Type: 
Working Paper

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