South African banks have become more reluctant to lend as the threat of extreme weather events has heightened the risk of defaults, a study by the South African Reserve Bank showed on Monday.

The paper, which examined 38 banks between 2009 and 2024, found credit growth decelerated after climate shocks such as floods and droughts, as well as following the introduction of a carbon tax in 2019.

The findings align with global trends observed in Europe, the US, and Brazil, where banks are grappling with the financial impact of climate change and regulatory efforts to reduce carbon emissions.

The tightening of credit comes as companies increasingly require funding to adapt to climate-related challenges and shift towards a low-carbon economy.

"This could delay progress in transitioning to a low-carbon economy and increase companies’ exposure to future climate-related disruptions," the authors noted in the study.

The study covered South Africa's largest banks, including Standard Bank, FirstRand, Absa, Nedbank and Capitec, as well as foreign banks operating locally, such as Citi, HSBC and Bank of China.

Banks reduced lending because climate shocks heightened the risk of defaults and diminished the value of collateral, the study found. At the same time, measures such as the carbon tax pressured corporate profits.

The report coincides with South Africa's G20 presidency this year, where climate finance has emerged as a key focus. Officials have advocated for stronger international support to help emerging markets manage climate shocks without stifling economic growth.

"Achieving a careful balance between prudential oversight and the provision of adequate credit will be critical to ensure that climate resilience and economic growth proceed hand in hand, particularly in emerging economies such as South Africa," the report concluded.