How does green credit affect the financial performance of commercial banks? ——Evidence from China

Abstract

As a major component of China's green finance system, the Chinese government is vigorously encouraging commercial banks to issue green credit. This study examines the impact of green credit on the financial performance of banks from the perspective of heterogeneous regional green development. Using unbalanced panel data for 34 Chinese commercial banks from 2007 to 2018, we empirically examine the impact of green credit issued by commercial banks on their financial performance using a fixed effects model. The results show that green credit improves commercial banks' financial performance, and this improvement is mainly derived from the positive effect of green credit on the rate of return on banks' interest-bearing assets, the level of green development can increase the economic benefits of green credit issued by banks, and higher green economic growth and greater support through government environmental policies imply a higher positive impact of green credit on the financial performance of banks. In conclusion, commercial banks should actively develop their green credit business, and the government should strengthen their green credit incentivizing policies to promote the coordinated development of green finance and a green economy.