BAKU, Azerbaijan, May 18
By Zeyni Jafarov – Trend:
The banking sector of the CIS region is exposed to high credit risks associated with environmental factors, due to lending to "brown" sectors of the economy, that is, sectors that have an adverse impact on the environment, Trend reports with reference to the Standard & Poor's (S&P) international rating agency.
“The level of banks' exposure to this risk differs between the countries of the region. Thus, the volume of loans to industrial enterprises and organizations engaged in the extraction of minerals varies from 12-13 percent in the South Caucasus countries and up to about 40 percent in Russia and Belarus,” the S&P said.
“Banking systems with the largest volume of lending to "brown" industries may face problems associated with the risk of transition to a low-carbon economy. Bank borrowers are exposed to both physical risks from extreme weather events and transition risks associated with changes in the regulatory and market environment, which could lead to a weakening of their credit quality,” the agency said.
"The EU proposed cross-border carbon tax mechanism, which should be operational as early as June 2021, is believed to represent one of the most realistic environmental risks for industrial companies in the region in the short term," the S&P stated.
The agency believes that the introduction of this mechanism could lead to a significant increase in the costs of exporters in the region and put pressure on their credit quality in the long term.
According to Standard&Poor's, the development of banking regulation and trends in financial markets in many countries are more related to ESG factors (environmental, social, and governance factors).
In the CIS countries, Ukraine and Georgia, banking regulation related to ESG factors will evolve in the coming years, providing business opportunities, the agency added.
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