allocated to a specific sector within each province. We face this issue in four countries, for which we make imputations based on the province-specific sectoral distribution of GDP.<sup>26</sup> Historical probabilistic information allows natural disasters geographical mapping in LAC for different kinds of events. Table 5 shows the percentage of provinces in a country affected by specific hazards across four hazard levels: very low, low, medium, or high. For example, the drought hazard is assessed as high for 11 percent of the provinces of Bolivia, which corresponds to one province (Potosi) out of the nine Bolivian provinces. The selection of natural disasters for which we assess physical risks is based on the most economically damaging and frequent ones in the LAC region: wildfires, floods (riverine), landslides, earthquakes, cyclones, and droughts.<sup>27</sup> Wildfires and floods have high hazard mapping for most of each country’s provinces in our sample, with landslides and earthquakes representing a relevant threat. The prevalence of hazards varies across the country’s provinces (Table 5). The hazard of wildfire is classified as high for all or almost all provinces in our sample of countries, except for Ecuador where less than half of their provinces present a high chance of encountering weather that could support a substantial wildfire. Floods are also a highly prevalent risk across the countries’ provinces, but to a lesser extent in Chile and Peru. More than three quarters of the states in Mexico, Colombia, and Ecuador include provinces with land conditions that make localized landslides a frequent threat. Moreover, the chance of having a potentially damaging earthquake is a significant threat in a high share of provinces, especially in Chile, Peru, and Ecuador.

Cyclone and droughts are the hazards with the lower share of provinces with high hazard classification. Potentially damaging cyclone-strength winds are a relevant hazard for Mexico and Dominican Republic, and to a lesser extent for Colombia. Alternatively, water scarcity (drought) is the natural disaster with the lowest hazard level province-wide across LAC; still, some countries have a relevant share of provinces with high or medium hazard level, namely Chile, Dominican Republic, and Mexico.

Information on hazard mapping is combined with data on the sector-specific geographical distribution of banking loans to estimate the banking sector's exposure to specific physical risks. We calculate the total amount/percentage of banking loans exposed to a specific physical risk, distinguishing between the different sectors' characteristics and their vulnerability to natural disasters. For instance, assuming landslides affect primarily the transport, storage and communication sector in Brazil, the amount of banking loans that are highly exposed to landslides consist of the sum of banking loan portfolios invested in the sector in Rio de Janeiro, Minas Gerais, and Espírito Santo, which are the Brazilian states where the hazard level of a landslide is assessed as high. Our measure of bank loan exposure to physical risks is presented in Table 6.

> 26 The value of goods produced and the amount of credit that banks allocate to economic sectors in specific provinces have a strong positive correlation. To measure this relationship, we leverage on countries with publicly available data for both banks’ outstanding loans and GDP disaggregated by sector and province: Mexico, Chile, and Bolivia. As we do with credit information, we map the economic sectors most affected by the climate hazards under analysis using the same approach described Annex C. The correlation coefficients show evidence of the strong positive and statistically significant relationship between these two variables. Results are available upon request.

> 27 As in Pagliari (2021) we focus on riverine floods. Of the type of floods cataloged by CRED EM-DAT, riverine floods accounts for more than 80 percent of the economic damage and more than 90 percent of the people affected in our sample of countries.

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