International Journal of Marketing & Financial Management

International Journal of Marketing & Financial Management

Print ISSN : 2349 –2546

Online ISSN : 2348 –3954

Frequency : Monthly

Current Issue : Volume 12 , Issue 1
2024


This study discusses the natural disaster risks and loan disbursal by banks in terms of Loan Loss Provision (LLP) policies. Over the last 15 years, the U.S. Federal Disaster Recovery Agency has noted some major natural disasters and emphasized a significant risk factor for financial institutions. We examine three approaches: the UN Sendai Framework for disaster risk reduction, to analyze the effects of natural hazards, vulnerability, capacity, and other factors on loan distribution and risk management. We present both theoretical underpinnings and empirical evidence to support these approaches. Based on more than 445,000 bank-quarter data, we find that banks in counties with higher disaster risks tend to allocate larger LLPs after controlling for other bank-level characteristics. We then examine how banks discover and manage disaster risks using LLP policies and evaluate the effectiveness of such practices in mitigating financial exposure from natural disasters. With growing concerns about catastrophic events and the associated financial costs of disasters, our results are critical to illuminating how the insurance sector and financial institutions use LLPs to mitigate the monetary risk associated with natural disasters.

Keywords: Disaster Risk Management, Loan Disbursement, Natural Hazards, Loan Loss Provision, Financial Impact and Risk Mitigation.