The green advantage: mapping the profit power of green credit in commercial banks

Yamin Li () and Guo Wu ()
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Yamin Li: East China Normal University
Guo Wu: Sanda University

Economic Change and Restructuring, 2025, vol. 58, issue 2, No 12, 29 pages

Abstract: Abstract We examine the positive effect of green credit on bank profitability using firm-level data from Chinese A-share listed commercial banks during 2007–2022. We specifically delve into the income and cost effect channels both theoretically and empirically. The findings reveal that: (1) The significant positive effect of green credit on bank profitability is primarily through the income effect, while the anticipated cost effect remains undetected; (2) the results are robust across multiple tests and endogeneity treatments; (3) the positive effect of green credit is significant for small banks but is not evident among state-owned and joint-stock banks; (4) the difference-in-differences (DID) analysis indicates that the green credit policy issued by China’s central bank effectively enhances commercial banks’ profitability. We also discuss valuable insights for both banks and policymakers.

Keywords: Green credit; Bank profitability; DID; Income effect; Cost effect (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10644-025-09869-0

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