EFFECTIVENESS OF GREEN PROJECT SCREENING FOR BANK LENDING: EVIDENCE FROM PAKISTAN

Khalil Ullah Mohammad and Mohsin Raza Khan
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Khalil Ullah Mohammad: Corresponding author: HOD, Business Studies, Bahria University, Islamabad, Pakistan
Mohsin Raza Khan: Bahria Business School Bahria University, Islamabad, Pakistan
Authors registered in the RePEc Author Service: Khalil Ullah Mohammed

Bulletin of Business and Economics (BBE), 2022, vol. 11, issue 1, 93-103

Abstract: The banking sector is under huge pressure from its different shareholders to carry out its business in ethical ways. Globally greening banking policies are being introduced to encourage green lending. Central bank regulation and policy guidelines positively impact the bankers’ intention to adopt green banking. This study investigates the impact of green banking policy on the lending of Pakistani banks. Using an unbalanced panel of bank-level quarterly data of listed banks in the PSX from 2016 to 2021, a System Generalized Method of Moments (GMM) analysis is carried out. Two sample t-statistic suggest that noninterest expenses significantly fell after the policy was introduced and loan ratios improved. However, the profitability as a ratio of bank size is found to be lower. The GMM analysis finds that the green finance policy has positively affected bank lending in Pakistan. We find evidence of the long-run convergence of bank loans. Additionally, we find that bank lending was negatively impacted during the Covid-19 period and the green policy impact on lending was significantly reduced during this period. Green banking is a fairly new direction for banks. We find that the green banking policy positively impacted Islamic bank lending, but the magnitude was lower. This study is significant in showing the benefits of adopting socially responsible green investing for banks in developing countries.

Keywords: Service Bank Lending; Green Banking; Covid-19, Islamic Banking (search for similar items in EconPapers)
JEL-codes: G21 G24 (search for similar items in EconPapers)
Date: 2022
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