A1303
Title: From rain to ruin? Flood impacts on Italian SME loans
Authors: Michele Costola - Ca' Foscari University of Venice (Italy) [presenting]
Ilaria Prosdocimi - Ca Foscari University of Venice (Italy)
Giacomo Sarrocco - European Medicines Agency (Netherlands)
Abstract: Floods are the most frequent natural hazard in Europe, and their intensification under climate change poses growing risks to firms and financial stability. Small and medium-sized enterprises (SMEs), the backbone of the Italian economy, are especially exposed. The purpose is to investigate how floods affect SME loan performance in Italy by linking loan-level data on 24,219 securitized loans (2004-2023) with a dynamic measure of flood exposure at the provincial level. Unlike static hazard maps, this approach measures realized physical risk during the life of each loan, capturing the actual timing and severity of flood events. Using survival models, it is found that months of severe flooding increase SME default risk by up to 45 percent, with small firms and sectors such as real estate and water supply particularly vulnerable. By showing how realized climate shocks translate into loan defaults, the results identify a direct channel through which physical risks threaten financial stability and inform stress-testing exercises.
