Examining the Relationship between Climate Risk, Economic Policy Uncertainty, and Credit Risk: Evidence from MENA Banks Toward Sustainable Economic Development

The present research aims to explore the interaction between credit risk, climate risk, and economic policy uncertainty, in the Middle East and North Africa (MENA) region with a focus on sustainable economic development. To achieve these goals, this study uses a sample of 68 MENA banks during the period 2005–2020 and performs the System Generalized Method of Moments (SGMM). Empirical findings of the analysis reveal that credit risk is negatively associated with climate risk index. An improvement in the climate risk index significantly decreases credit risk for MENA banks. Furthermore, we found that the interaction between credit risk and economic policy uncertainty positively affects the level of credit risk. The findings of this study may have significant consequences for MENA bankers and policymakers.