Chekani Nkwaira

The challenges of revenue generation by banks are evident if one considers the accusations labelled against the banks of aggressive lending (Archaya & Naqvi, 2012), which basically centers on the pursuit of profits with minimum regard to risk management. If not read or if read in passing, loan terms can be used to destroy the reputation of banks when accusations of predatory loans surface. It is argued here that even if understood at the time of signing the acceptance of the loan, there is no guarantee that the terms are still top of mind of borrowers, especially those who borrow for a long term. Banks can use their advisory skills to periodically take borrowers through loan terms, confirm understanding, detect any wanton behaviors (WB) from borrowers’ financial activities that go against financial astuteness and may jeopardize repayment capabilities and offer advice on practices that are not counter to repayment capabilities. Banks can mitigate the challenges in interest income generation, particularly from a default point of view by periodically engaging borrowers to specifically advice on behavioral issues that manifest themselves in financial levers. Since borrowers stand to gain immeasurable value out of these engagements, banks can justifiably levy borrower advisory service fees (BASF) and wanton hazard fee (WHF). The authors show, through the application of the BASF and WHF, the potential income banks can generate. Using the BASF and WHF as sources of non-interest income, the potential benefit taking into account the credit loss as a function of BASF accruing to the bank is established.

This article investigates the capacity of banks to create shareholder value amidst regulators and stakeholders’ growing demands for reductions in financing to greenhouse gas emitting companies. The purpose of the study is to evaluate the shareholder value creation capacity of banks amidst transition risks resulting from reductions in loans from high greenhouse gas emitters. The study compares reductions in balance sheet corporate loans to returns on equity from income statements. The comparison is done for periods during which interest rates move downwards as a way of stress testing banks’ capabilities to generate shareholder value. A risk-return analysis is conducted to determine the rate of change in risk compared to shareholder value. A hypothesis-testing focus is used to test a value-creation proposition concerning the rate of change in corporate loans and return on equity. The results of the study strongly suggest that banks can create shareholder value when faced with loan reductions to high greenhouse gas emitting companies, even within constrained repricing conditions such as negative interest rate movements. Of the cases analyzed 88% have a similar outcome of value creation, which is supported by a rejection of the null hypothesis at p-value ≤ 0.05, justifying statistical significance. Furthermore, 53% of the changes in return on equity is explained by the changes in loans to greenhouse gas emitting companies. The study concludes that banks could still create shareholder value if they reduce funding towards high greenhouse gas emitting companies, provided they devise prudent strategic portfolio tilts in assets.

Despite rapid growth in climate news coverage, some banks are increasing financing towards greenhouse gas emitters with investors whose decisions intensify climate challenges. This study aims to establish the impact of climate news on investment decisions involving banks’ intensified fossil fuel financing and recommend remedies. Descriptive, linear regression analyses and the two-sample t-test are applied. The list of bank stems from the Consumer News and Business Channel website. Share prices, traded shares and market capitalizations are obtained from Macrotrends and Companies’ market cap websites for computing demand and holding periods. Results reveal more demand for riskier banks after European symposiums in contrast to Asia’s reduction. It is established that no significant linear relationships exist between demand and holding periods with t < T and p-value > 0.05. The null hypothesis of no linear relationship is not rejected. There is more price risk in Europe than in Asia with average volatilies of 0.439871 and 0.067472, respectively, at p-value 0.002117 < 0.05 based on the two-sample t-test. The null hypothesis of no difference in volatility means is rejected. The higher volality risk corresponds to higher demand for riskier bank shares in Europe. Climate news persuades Asian investors to reduce the demand for the banks’ shares. Conversely, European investors demonstrate behaviors incompatible with climate risk mitigation, particularly in periods after symposiums. A Global climate risk blacklisting initiative and a publicised Global climate risk index should accompany downgrades aimed at fossil fuel project financiers. Coverage of these measures at conferences may influence more investors to make correct decisions.