Banks told to examine climate risks to projects before approving loans

The Nepal Rastra Bank has instructed banks and financial institutions to assess climate risks like floods, droughts and cyclones to infrastructure and other projects before providing loans for them.

In the revised Guidelines on Environmental and Social Risk Management for Banks and Financial Institutions 2022 unveiled on Sunday, the central bank came up with a checklist on climate risks to projects that banks and financial institutions need to complete before issuing loans.

Although the previous guidelines introduced in 2018 had mention of climate-related risks, there was no separate checklist. The central bank said the new checklist will help banks and financial institutions to assess the risks before financing any projects.

The banks face risks from reduced repayment capacity of clients, reduced value of collateral property, and reputational risk due to negative publicity in the event of the borrower flouting environmental rules, according to the guidelines.

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