El Nino is no longer being treated by banks only as a problem for farmers, commodity traders or insurers. The current cycle is prompting lenders to examine whether droughts, floods, heat stress and disrupted supply lines could weaken borrowers, reduce repayment capacity and expose financial institutions to faster-moving credit losses. That shift matters for cities because the consequences of climate shocks travel through the systems on which urban economies depend: food supply, logistics, energy, trade, data centres, commercial activity and household debt.
A report by Bloomberg News, published by NDTV Business, shows banks assessing loan structures and potential losses as the climate phenomenon develops across the equatorial Pacific. BBVA has asked local risk teams to review loan books in countries including Peru, Argentina and Colombia, where the bank has a significant client base. It said debt rescheduling could be considered for vulnerable customers after its analysis is completed and shared through its advisory process.
The approach reflects a change in how climate risk is being positioned inside banking institutions. Instead of treating extreme weather as a remote environmental concern, lenders are incorporating it into decisions about credit quality, repayment schedules, portfolio exposure and early-warning systems. The financial question is no longer simply whether a weather event will damage crops. It is whether the damage will move through companies, workers, supply chains and public infrastructure before it appears in a bank’s default figures.
The urban system is central to that transmission. Cities concentrate borrowers, transport networks, warehouses, ports, processing facilities, offices, data centres and consumer demand. A flood or drought may begin outside a metropolitan area, but its effect can emerge in higher food prices, interrupted deliveries, reduced industrial output or increased pressure on municipal services. Danske Bank has specifically warned that companies outside the immediate geographic path of El Nino may still be exposed through shipping and logistics networks.
That wider exposure is one reason banks are moving beyond sector labels. JPMorgan Chase and Citigroup analysts have linked El Nino risks not only to agriculture, commodities and energy, but also to the broader economy. Standard Chartered has asked bankers to conduct granular assessments of the current cycle across corporate and investment banking portfolios. Karen Wilkinson, the bank’s global head of climate, sustainability and reputational risk, said the work was being incorporated into client-level climate risk assessments alongside monitoring of flooding, storms and heat stress at key operating locations and data centres.
The evidence in the report also shows why aggregate lending numbers can conceal concentrated vulnerabilities. Credicorp estimated in August that about 9% of its loan book was directly exposed to clients at risk from El Nino’s effects. Banco do Brasil’s chief financial officer said the lender was very concerned and closely monitoring the phenomenon. Intercorp Financial Services, one of Peru’s largest financial firms, has already established El Nino-related loan clauses for customers in fishing and agriculture, including grace periods and rescheduling.
These mechanisms are significant because climate shocks do not always fit conventional repayment calendars. A farmer, fishing company, logistics operator or food processor may remain commercially viable over the long term but face an immediate cash-flow crisis after a failed harvest, damaged equipment, restricted transport route or sudden change in commodity availability. A repayment holiday or revised schedule can therefore function as a risk-management tool as well as customer relief. The report does not establish how widely such measures will be used or what their final cost will be for lenders and borrowers.
The distinction between direct and indirect exposure is especially important for urban economies. A bank may classify a loan according to the borrower’s industry or location, while the underlying risk may sit elsewhere in the supply chain. A company headquartered in a city outside the affected region can still depend on a disrupted port, agricultural supplier, shipping route or energy market. This makes location-based risk assessments insufficient on their own and helps explain why banks are seeking more detailed portfolio and client-level information.
The timing of losses is another issue. Grace Osborne, a sustainable finance analyst at Bloomberg Intelligence, said agricultural loan exposures may feed through to credit quality faster than real estate loans. That does not mean urban property is insulated. It indicates that different parts of the financial system absorb physical climate shocks at different speeds. Agricultural stress may appear quickly through crop or livestock losses, while effects on property, construction, retail or commercial activity may emerge later through lower incomes, supply constraints, insurance gaps or weakened demand.
The report places these decisions within a growing regulatory framework, particularly for banks in the European Union. Evolving disclosure requirements under the EU’s Pillar 3 rules are increasing pressure on lenders to report climate-related risks. Osborne also pointed to the possibility of agricultural loan repayment holidays after severe climate events because of the insurance protection gap in European agriculture.
Disclosure requirements do not themselves prevent losses, but they can change how risks are identified and discussed. A bank that must report physical exposure has stronger incentives to map vulnerable sectors, test scenarios and establish internal monitoring systems. For cities, the institutional consequence is important: climate resilience is increasingly connected to the transparency and risk practices of banks that finance businesses operating in urban and regional economies.
The figures disclosed by CaixaBank and Santander illustrate the challenge of interpreting exposure. CaixaBank said sensitive exposures represented around 60% of its lending to agriculture, livestock farming and fishing, but that the sector accounted for less than 1% of its total lending portfolio. The bank therefore considered its overall physical-risk exposure limited, while maintaining a framework to assess how weather events could affect default and loss-given-default measures.
Santander, meanwhile, reported 1.7 billion euros of agriculture, forestry and fishing loans exposed to physical risk, equivalent to 56% of that portfolio. The bank said it uses different climate scenarios and time horizons, as well as specific assessments when significant events occur. Its monitoring includes weekly weather bulletins and monthly El Nino updates, which are intended to help teams identify affected areas and assess exposure across portfolios and clients.
The contrast between these disclosures shows why a single headline number cannot describe climate vulnerability. The same percentage may represent very different levels of risk depending on the size of the overall bank, the geography of borrowers, the availability of insurance, the resilience of infrastructure and the speed at which customers can recover. A high share of exposure within a small sector may be manageable at group level, while a lower share connected to critical supply chains may have broader economic consequences.
BBVA’s proposed two-phase approach makes the modelling challenge explicit. The first phase involves quantitative analysis based on historical data, comparing neutral climate scenarios with the most intense El Nino events on record. The second would integrate seasonal meteorological models and monthly updates for key variables into an early-warning system for clients. BBVA described the application as a test and validation of models for future use cases, indicating that banks are still developing methods rather than working with a settled template.
That uncertainty is reinforced by the limits of widely used indicators. Sebastian Werner, head of climate risk scenario design at Citi, cautioned that the Oceanic Nino Index, which focuses on the central tropical Pacific, does not capture all aspects of the weather cycle. For lenders, this means that a single index may not adequately represent the local conditions affecting a borrower. For cities, it means that resilience planning based on broad regional signals may miss the interaction between rainfall, heat, drainage, transport, energy and commercial operations.
The institutional question is therefore larger than whether banks will offer loan holidays. It concerns who has the information, authority and financial capacity to respond when climate events cross administrative and sectoral boundaries. Banks can monitor portfolios and adjust repayment terms, but they do not control ports, roads, drainage networks, power systems or municipal emergency responses. Borrowers may need reliable public infrastructure and accurate weather information before financial relief can stabilise their operations.
The report also demonstrates that climate risk management is becoming a coordination exercise between banks, clients, regulators, insurers and public agencies. Santander’s early-warning mechanisms, BBVA’s client advisory process and Intercorp’s loan clauses represent different points on that chain. None eliminates the underlying physical hazard. Their purpose is to identify exposure earlier, prepare for disruption and reduce the chance that a temporary climate shock becomes a lasting credit event.
What the evidence confirms is that El Nino is being treated by major lenders as a portfolio-wide financial risk with implications beyond agriculture. The documented responses include loan-book reviews, client-level assessments, repayment flexibility, scenario analysis, weather monitoring and regulatory disclosure. What remains uncertain is the scale of eventual losses, the number of borrowers who may require relief and how effectively current models will capture indirect supply-chain and urban-system exposure.
The developments worth monitoring are the publication of further bank disclosures, the activation of repayment measures, changes in insurance protection and the effect of weather disruptions on logistics, commodities and operating locations. For cities, the central lesson is clear from the evidence available: climate shocks can become urban financial risks even when the initial damage occurs far from the places where banks, companies and consumers are based.
