Ghana’s banking sector has been ranked 4th safest from natural disasters in Sub-Saharan Africa (SSA), according to the Fitch Solutions Climate Change and Opportunities for SSA Banking Sectors report.
The ranking places South Africa at the top, followed by Côte d’Ivoire (2nd) and Botswana (3rd). Other countries in the top 10 include Rwanda (5th), Senegal (6th), Namibia (7th), Kenya (8th), Gabon (9th), and Lesotho (10th).
At the bottom of the rankings, South Sudan, the Democratic Republic of Congo, and Somalia are the most vulnerable to climate-related financial risks.
Climate Change Risks for SSA’s Banks
According to the report, banks across SSA face four major climate risks:
- Physical Risks: These include direct damage to assets and infrastructure from extreme weather events, rising temperatures, and sea level changes.
- Transition Risks: The shift toward a low-carbon economy may affect industries that banks finance, leading to loan defaults.
- Financial Market Volatility: Climate events can cause fluctuations in commodity prices and investor confidence, impacting bank stability.
- Limited Climate Insurance Uptake: Many businesses and individuals lack climate-related insurance, increasing financial vulnerabilities.
Agriculture Dependency and Economic Strain
SSA’s heavy reliance on agriculture and natural resources makes it particularly susceptible to climate change. Nearly two-thirds of Africa’s economic output is tied to natural resources, with rain-fed agriculture playing a crucial role.
The economic impact of extreme weather is severe, with losses estimated between $7 billion and $15 billion per year. Droughts, floods, and erratic rainfall disrupt supply chains, cause job losses, and reduce economic output, leading to higher loan defaults and financial instability in the banking sector.
As borrowers struggle to repay loans, banks face capital and profitability risks, affecting their overall resilience.
The Road Ahead for SSA Banks
To mitigate these risks, banks in SSA must adopt climate-resilient strategies, including enhanced risk assessment models, green financing initiatives, and improved disaster preparedness. Policymakers and financial institutions will need to integrate climate risk management into their long-term growth strategies to ensure a stable banking sector in the face of climate change.
