Are green loans less risky? Micro-evidence from a European Emerging Economy

Abstract

The role played by the banking sector in supporting the green transition has been limited but is expected to increase substantially. We investigate whether the green loans granted by Romanian financial institutions during the period from 2010 to 2020 bear less credit risk compared with other loans in their portfolio. In this respect, we use a novel micro database with information on all green loans granted by a representative share of Romanian financial institutions, combined with debtors’ financial statements. We use different approaches to control for the small share of green loans and find that firms with a sounder financial profile are more likely to access green loans. Using a matched sample of non-green loans, we are able to disentangle the factors that contribute to the increase in credit risk, but we do not observe a significant risk reduction in the case of green loans.