Banks Review Loan Exposure as El Niño Raises Climate Risks for Clients

El Niño is prompting banks to examine whether weather shocks could weaken borrowers’ finances and affect loan repayments. Some lenders are reviewing credit exposures and considering options such as repayment pauses or rescheduled debt for vulnerable customers. The work reflects a wider concern: climate impacts can reach a bank through farms and fishing businesses, but also through distant suppliers and transport networks.

BBVA reviews loans in Latin America

Spain’s Banco Bilbao Vizcaya Argentaria SA (BBVA) has asked local risk teams to review loan books in markets including Peru, Argentina and Colombia. The bank says the developing El Niño cycle, combined with global warming, presents a distinct set of risks for clients. Depending on the findings, it may consider measures such as rescheduling debt for its most vulnerable customers.

“The data we are currently generating supports this management process,” BBVA said in an analysis shared with Bloomberg. The bank plans to share its findings with clients once it is satisfied with the analysis, as part of its advisory work.

BBVA has outlined two stages for assessing the effects. The first uses historical data to compare neutral climate conditions with the most intense El Niño events on record. The second adds seasonal weather models and monthly updates on key variables, with the aim of creating an early-warning system that can help clients prepare for extreme weather. BBVA described the approach as a test of models for future use.

Risks can travel through supply chains

El Niño is linked to warming in the equatorial Pacific and is already contributing to droughts and flooding that can damage crops. The World Meteorological Organization says Southern Africa and Southeast Asia face heightened risks, while parts of Latin America may be exposed to both drought and floods.

For lenders, the effects may extend beyond borrowers in the immediate path of severe weather. Danske Bank A/S has pointed to shipping and logistics as potential sources of exposure: a company headquartered elsewhere can still face disruption if its supply lines run through affected areas. Analysts at JPMorgan Chase & Co. and Citigroup Inc. have also linked El Niño risks to agriculture, commodities and energy, as well as wider economic effects.

Sebastian Werner, Citi’s head of climate risk scenario design, has cautioned that the Oceanic Niño Index, a widely followed measure focused on the central tropical Pacific, does not capture every aspect of the weather cycle. That limitation can complicate risk modeling, particularly when a bank is trying to estimate how climate conditions could affect borrowers across different regions and industries.

Money managers have warned that a strong El Niño could disrupt commodity supplies, add to inflation and widen trade deficits. For banks, these channels matter because pressure on input costs, sales or transport can affect a borrower’s ability to meet loan obligations even without direct damage to its property.

Local lenders assess vulnerable borrowers

Some banks have already identified significant exposure. Lima-based Credicorp Ltd. estimated in August that about 9% of its loan book was directly exposed to clients at risk from El Niño’s effects. Banco do Brasil SA Chief Financial Officer Marco Geovanne Tobias da Silva said the bank was “very concerned” and closely monitoring the cycle’s effects.

Peru’s Intercorp Financial Services says it has set up special loan clauses for customers in fishing and agriculture. Available measures include grace periods and rescheduling. Such arrangements can give a borrower more time to manage disrupted income, though the source does not specify how many customers may use them or under what terms.

BBVA is not alone in reviewing regional exposures. Standard Chartered Plc has asked bankers to assess El Niño risks in detail, including for clients across Africa, the Middle East and Asia. Karen Wilkinson, the bank’s global head of climate, sustainability and reputational risk, said Standard Chartered has analyzed its corporate and investment banking portfolios and is adding the findings to assessments at the client level.

The bank is also monitoring physical threats such as floods, storms and heat stress at key operating locations and data centers. That focus recognizes that weather can affect a company’s own facilities as well as the suppliers and infrastructure it relies on.

European lenders weigh agriculture exposure

EU-based banks face added pressure to report climate risks under evolving Pillar 3 disclosure requirements. Bloomberg Intelligence analyst Grace Osborne has warned that severe climate events could lead banks to offer agricultural loan repayment holidays, particularly where insurance protection for European agriculture is limited. She has also highlighted borrowers in water-intensive sectors as another area for lenders to assess.

BBVA, CaixaBank SA and Banco Santander SA have agricultural loan books exposed to physical climate risks, according to Bloomberg Intelligence analysis. Osborne said these exposures could affect credit quality sooner than real estate loans, making the timing and scale of weather impacts relevant to lenders’ monitoring.

CaixaBank’s climate risk manager, Julia Lucena, said climate-sensitive lending represents around 60% of the bank’s loans to agriculture, livestock farming and fishing, while those sectors together account for less than 1% of its total lending. The bank therefore considers its overall physical exposure through these sectors limited. CaixaBank says it assesses how weather events may affect credit measures, including the likelihood of default and potential losses if a borrower defaults. Lucena said the bank’s lending deemed sensitive to physical climate risks has remained relatively stable since 2022.

Santander says anticipation, preparedness and response are its current focus. Its monitoring includes weekly weather bulletins and monthly El Niño updates to help teams identify areas that may be affected and assess exposure across clients and portfolios. The bank says it has procedures that can be activated as needed.

The next test for lenders will be turning broad climate scenarios into useful borrower-level decisions. BBVA’s staged analysis, Santander’s alerts and Intercorp’s loan clauses show different ways banks are preparing. For clients, the practical question is whether a lender’s review leads to clear information about exposure and available repayment options as conditions develop.