Financial Internet Quarterly (Sep 2023)

Polish household default risk and physical risk of climate change

  • Kurowski Łukasz,
  • Sokal Katarzyna

DOI
https://doi.org/10.2478/fiqf-2023-0021
Journal volume & issue
Vol. 19, no. 3
pp. 87 – 99

Abstract

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This paper aims to assess the level of credit risk (from the perspective of default risk) among Polish households associated with the physical risks of climate change. In order to determine the potential impact of the physical risk of climate change on household credit risk, we conducted CAWI interviews with 1,006 borrowers residing in different Polish voivodeships (to account for heterogeneity of credit exposures to extreme weather events). According to these respondents, wildfires and storms in Poland are the greatest source of physical risk of climate change. In the event of a wildfire or storm, approximately 13% of borrowers would not be able to repay their loans while not being insured, which potentially increases banks’ credit risk and exposes banks to losses. However, we find that households underestimate the credit risk that could arise from a drought.

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