Climate change has emerged as one of the most critical challenges of the 21st century, exerting multidimensional shocks that significantly disrupt ecological integrity and socioeconomic systems. As the core of the financial system, banks’ risk governance capacity has a critical influence on both economic growth and financial stability. This study examines the distinct transmission mechanisms of physical and transition climate risks through an analysis of panel data from 189 Chinese regional commercial banks (2014-2023) using a two-way fixed effects model. Our results demonstrate that (i) both physical and transition risks significantly increase bank credit risk; (ii) long-term gradual climate change and extreme weather events increase default probabilities through climate-induced economic losses to borrowers, and (iii) transition risks impair credit quality primarily by reducing corporate solvency. We further identify insurance as an effective mitigant of weather-related credit risks and reveal spatial heterogeneity – banks in China’s Hu Line transition zone face greater physical risks, while southeastern institutions are more exposed to transition risks. Based on these empirical findings, this study proposes concrete policy recommendations to strengthen the management of climate risks within the banking sector.