The Impact of Green Lending on Credit Risk in China

Sustainability, 10(6), 2018

16 Pages Posted: 27 Jun 2018

See all articles by Yujun Cui

Yujun Cui

University of Waterloo

Sean Geobey

University of Waterloo

Olaf Weber

University of Waterloo

Haiying Lin

University of Waterloo

Date Written: June 14, 2018

Abstract

This study explores China’s green credit policy from a credit risk perspective. Green finance has been growing rapidly in China since the government issued its Green Credit Policy. The objective of this study is to explore whether green loans are less risky than non-green loans. Based on a five-year dataset of 24 Chinese banks, we used panel regression techniques, including two-stage least square regression analysis and random-effect panel regression to examine whether a higher green credit ratio reduces a bank’s non-performing loan ratio (NPL ratio). The results suggest that allocating more green loans to the total loan portfolio does reduce a bank’s NPL ratio. We conclude that institutional pressure by the Chinese Green Credit Policy has a positive effect on both the environmental and the financial performance of banks. The study contributes to the literature on the correlation between green lending and credit risks, as well as to the literature on the impact of institutional pressure on environmental and financial risks.

Keywords: Green Finance, Green Credit Policy, Non-Performing Loan Ratio, Environmental Risk Management, Chinese Banking Sector

Suggested Citation

Cui, Yujun and Geobey, Sean and Weber, Olaf and Lin, Haiying, The Impact of Green Lending on Credit Risk in China (June 14, 2018). Sustainability, 10(6), 2018, Available at SSRN: https://ssrn.com/abstract=3196031

Yujun Cui

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

Sean Geobey

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

Olaf Weber (Contact Author)

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

Haiying Lin

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
53
Abstract Views
248
rank
419,554
PlumX Metrics