Drought on the balance sheet: African supervisors bring climate risk into the rulebook

African central banks came late to the climate-finance conversation and are arriving with a distinctly practical agenda. Where European supervisors debate transition pathways, African supervisors are pricing physical risk that has already arrived: drought-linked agricultural defaults, flood damage to collateral, and hydropower shortfalls that ripple through corporate loan books.

The direction of travel is visible in published guidance. The South African Reserve Bank's Prudential Authority has issued climate-related disclosure and governance guidance aligned with international standards; the Central Bank of Kenya published climate risk management guidance for its banking sector in 2021 and has incorporated climate scenarios into supervisory work; Bank Al-Maghrib has issued directives on climate and environmental financial risk management.

The analytical challenge is data. Flood plains, rainfall histories and crop-yield distributions are unevenly digitised, and supervisors are partnering with meteorological agencies and development institutions to build the geospatial layers that credible stress testing requires.

The policy tension is development finance. Rules that raise the capital cost of lending to smallholder agriculture or off-grid energy could starve precisely the sectors adaptation requires. The alternative lever under discussion in several jurisdictions is preferential refinancing for verified adaptation lending — treating resilience as a risk mitigant rather than climate exposure purely as a risk add-on.

Central banks cannot supervise the weather. They can — and increasingly do — supervise the balance sheets the weather writes itself onto.