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Description

49 banks across 14 African countries face climate risks worth USD 218 billion (nearly 29% of their total loans) due to credit extended to environmentally sensitive sectors. Commercial banks dominate the financial sector and financial intermediation across Africa. They have the ability to raise own funds through bank deposits and are governed by international standards set by Basel II and III regulations for capital adequacy. Though the depth of banking sector is developing, domestic credit to private sector by banks (% of GDP) is still low in Africa at 27% compared to other emerging economies. Commercial banks have a fiduciary responsibility to seek market-based returns for their investments and are therefore very risk averse.

Commercial banks and non-banking commercial financial institutions currently do not have developed climate strategies but they have a critical role to play in mainstreaming resilience in their lending portfolios. Commercial FIs have networks that can be leveraged including relationships with farmers, co-operative and MSMEs. They can build technical capacity to structure financial instruments in partnership with development banks and other concessional finance providers e.g. dedicated lines of credit for climate adaptation projects. They have the potential to align their products with emerging taxonomies and metrics for adaptation & resilience.

  • Pan African Banks (PABs): There are 36 PABs which are headquartered in African countries and have operations in other countries in the continent. The PAB with the widest footprint is Ecobank Transnational of Togo, which has a presence in 33 countries, while the South African Standard Bank has the largest consolidated assets. Studies suggest that PABs have been successful in increasing firms’ access to finance, increasing competition and efficiency in the banking industry and have a positive impact on micro-prudential stability with the least cyclical behavior in times of crisis. PABs hold great potential to raise their own capital and to drive financial innovation in Africa, but no specific climate commitments have been made by PABs to date.

 Minimal risk appetite Risk Appetite

Modest risk appetite.

 No formal mandate Climate Mandate

No formal and/or regulatory mandate to embed climate change strategy in investment decisions; no mandate to avoid climate harming investments.

 Capital raising unrestricted Ability to Raise Funds

Presence of legal/regulatory frameworks to embed climate change in investment decisions.

 Ability to determine funding mandate, with some limits Flexibility to Deploy Funds

Ability to determine funding mandate and flexibility on types of vehicles, with some limits on one or both.
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This project has been developed in partnership with the Global Center on Adaptation

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