Dar es Salaam. Tanzania’s banking sector faces growing vulnerability to climate change, with risks concentrated in loan portfolios and collateral tied to climate-sensitive sectors, a new report by the Bank of Tanzania (BoT) shows.
The Climate Risk Analysis in the Banking Sector report, released in March 2026, warns that while current exposure to climate hazards remains relatively low, the financial system is increasingly susceptible to shocks from droughts, floods and other extreme weather events.
The findings indicate that banks’ exposure stems largely from the geographic concentration of loans and collateral in economically active areas, where climate disruptions could have outsized financial consequences.
According to the report, loans and collateral are predominantly located in districts with low to moderate climate risk. However, this concentration presents a structural vulnerability, as climate shocks affecting key economic zones could simultaneously weaken borrower repayment capacity and reduce the value of pledged assets.
“Climate-related financial risks arise from the interaction between hazard exposure and the geographic concentration of banking assets,” the report notes, highlighting the potential for systemic stress if such risks are not adequately managed.
The central bank’s analysis, which covered four major banks accounting for over half of the sector’s assets, shows that 59.6 percent of loans are exposed to low drought risk, while exposure to floods is even lower, with more than 94 percent of loans falling in areas classified as very low risk.
Despite this, the BoT cautions that climate change is expected to intensify over time, potentially transforming episodic weather shocks into persistent threats that could erode asset quality and increase non-performing loans. The report identifies agriculture, energy and infrastructure as among the most climate-sensitive sectors, noting that disruptions in these areas could directly affect borrowers’ ability to service loans.
It further warns that extreme weather events—such as prolonged droughts or severe flooding—can damage collateral, disrupt business operations and strain liquidity within the banking system.
“Floods and droughts can reduce borrower income, lower collateral values, and increase credit and liquidity risks, thus affecting the financial sector and the economy at large,” the report states.
Beyond physical risks, the BoT also flags emerging transition risks linked to the global shift towards a low-carbon economy, including tighter environmental regulations and changing market conditions, which could affect the profitability of certain borrowers and, by extension, banks’ balance sheets.
The central bank emphasises the need for stronger integration of climate considerations into financial supervision, warning that failure to do so could allow risks to accumulate unnoticed. Among its recommendations, the BoT calls for enhanced monitoring of climate-exposed assets, improved data collection on loan and collateral locations, and the incorporation of climate risk into stress testing and supervisory frameworks.
It also urges banks to adopt more resilient lending practices and align with emerging global standards on climate-related financial disclosures.
While the report reassures that the sector remains stable under current conditions, it underscores that continued vigilance will be critical as climate risks evolve.
“The banking sector has relatively limited exposure… however, monitoring is essential to cushion the sector against potential impacts of extreme climate events,” the report states.
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