This paper provides a quantitative assessment of the potential impact of climate-related risks on aggregate credit risk dynamics in the Serbian banking sector. To this end, we develop an empirical non-performing loans (NPL) model that identifies key macroeconomic determinants of NPL dynamics, including GDP growth, inflation, interest rates, and unemployment. These variables capture distinct theoretical channels through which climate-related shocks may affect credit risk, such as income effects, debt-servicing capacity, and financial conditions. Building on this framework, the analysis incorporates climate scenarios developed by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) to examine how climate-related risks may spill over to the future trajectory of NPLs indirectly through their impact on macroeconomic conditions. By comparing baseline projections with climate-adjusted scenarios, the study provides a quantitative evaluation of the potential effects of climate change on banking sector asset quality in Serbia. Overall, the results underscore the importance of integrating climate-related risks into credit risk assessment frameworks and offer policy-relevant insights for banks, regulators, and policymakers in Serbia.
Todorović et al. (2026) studied this question.