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The Impact of Green Lending on Credit Risk in China

Yujun Cui (), Sean Geobey (), Olaf Weber () and Haiying Lin ()
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Yujun Cui: School of Environment, Enterprise and Development (SEED), University of Waterloo, 200 University Avenue West, Waterloo, ON N2L 3G1, Canada
Sean Geobey: School of Environment, Enterprise and Development (SEED), University of Waterloo, 200 University Avenue West, Waterloo, ON N2L 3G1, Canada
Olaf Weber: School of Environment, Enterprise and Development (SEED), University of Waterloo, 200 University Avenue West, Waterloo, ON N2L 3G1, Canada
Haiying Lin: College of Business, Northern Illinois University, 740 Garden Rd, DeKalb, IL 60115, USA

Sustainability, 2018, vol. 10, issue 6, 1-16

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 (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2018
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