Impact of Climate Change Scenarios on Financial Performance of Banks in Iran (An Approach Based on RDCGE Model)

Articles in Press

Document Type : Original Article

Authors

Sajad Habibi ¹

Reza Zeinalzadeh ²

Ali Raeispour ³

Mohsen Zayanderoodi ⁴

Abbas Babaeinejad ⁵

¹ PhD Student, Department of Economics, Kerman Branch, Islamic Azad University, Kerman, Iran

² Department of Economics, Ke.C., Islamic Azad University, Kerman, Iran.

³ Department of Economics, Ke.C., Islamic Azad University, Kerman, Iran

⁴ Department of Economic, Ke.C., Islamic Azad University, Kerman, Iran

⁵ Department of Public Administration, Ke.C., Islamic Azad University, Kerman, Iran

https://doi.org/10.22067/erd.2026.99665.1378

Abstract

One of the lesser-known variables affecting the financial performance of banks, as the most important source of financing for economic activities in Iran, is climate change, which, through its negative impact on economic activities, can affect the probability of default on bank facilities and, consequently, the financial performance of banks. Therefore, in the present study, for the first time, the impact of climate change scenarios on the financial performance indicators of the Iranian banking sector was examined using the new approach of the Recurrent Dynamic Computable General Equilibrium Model (RDCGE). The results showed that climate change shocks in the form of IPCC1 (temperature change equal +7.27% and precipitation change equal -12.4%), IPCC2 (temperature change equal +7.27% and precipitation change equal -12.2%), and IPCC3 (temperature change equal +5.03% and precipitation change equal -12.3%) scenarios have a significant negative impact on the indicators of financial performance of the Iranian banking sector (ratio of value added of financial services to gross domestic product, ratio of past due and overdue facilities to total banking facilities, ratio of long-term deposits to total bank deposits, and ratio of facilities granted by banks to gross domestic product). Also, among the climate change shocks studied, IPCC1, IPCC2, and IPCC3, respectively, have the most negative impact on the indicators of financial performance of the banking sector. On the other hand, among the indicators of the financial performance of the banking sector, the ratio of value added of financial services to gross domestic product, the ratio of past due and overdue facilities to total banking facilities, the ratio of long-term deposits to total bank deposits, and the ratio of bank facilities to gross domestic product show the most negative response to the studied climate change shocks, respectively.

Keywords

Climate change

financial performance

banking sector

Recursive dynamic computable general equilibrium model (RDCGE)

Subjects

• Monetary Economics-Financial Economics-

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