Loan losses could reach 5.4% by 2030/ How is climate threatening financial stability in Albania?
Climate change is no longer just an environmental or economic challenge. A recent study shows that its effects are increasingly extending to the Albanian financial system, increasing the risk for banks and sectors that depend on climate conditions.
The analysis, based on economic, financial and climate data for the period 2010-2024, highlights that extreme events such as floods and droughts can directly impact the solvency of businesses and individuals. According to the study, a severe climate event can increase the level of non-performing loans by an average of 1.47 percentage points in sectors most exposed to climate change.
Albania is considered among the most vulnerable countries to these risks, due to the structure of its economy. Over 35% of its Gross Domestic Product is generated by activities directly related to the climate, such as agriculture, tourism and hydropower. This means that any strong climate shock could have knock-on effects on the economy and subsequently on the banking sector.
The study also estimates that around a quarter of the country's loan portfolio is exposed to carbon-intensive sectors. Construction, manufacturing, transport and logistics remain among the activities most vulnerable to future decarbonisation policies and the additional costs they may entail.
According to simulations, imposing a carbon tax of 50 euros per ton of carbon dioxide could reduce the profits of these sectors by up to 4%, increasing the risk of loan defaults and pressure on banks. In the most pessimistic scenario, where global temperatures continue to rise at high rates, accumulated losses from problematic loans in the Albanian banking system could reach up to 5.4% of the total loan portfolio by 2030. Small and medium-sized enterprises, as well as agro-processing businesses, are expected to be most at risk.
While in a more controlled transition scenario towards a green economy, losses could remain below 2.5%, proving that early investments and preventive measures can significantly mitigate the financial costs of climate change.
However, experts estimate that the Albanian financial sector is still in the initial stages of adaptation. Green lending accounts for a small share of total loans, while only a limited number of financial institutions have fully integrated climate risks into their risk management.
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