The impact of green credit distribution on bank performance and influencing factors: a case study of Indonesian banks

Fikri Ali Fata and Zaenal Arifin
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Fikri Ali Fata: Islamic University of Indonesia
Zaenal Arifin: Islamic University of Indonesia

International Journal of Research in Business and Social Science (2147-4478), 2024, vol. 13, issue 1, 323-332

Abstract: This research aims to analyze the impact of green credit distribution by banks on bank performance and identify factors that can influence green credit. The study utilizes data from 46 banks in Indonesia during the 2018-2022 period, by using the panel data regression method. The findings indicate (i) that green credit does not have a significant influence on credit risk, as measured by the NPL (Non-performing Loan). The distribution of more green credit allocations does not result in a decrease in bank credit risk. Additionally, sustainable business borrowers do not exhibit better debt repayment performance compared to the non-sustainable business category. (ii) In terms of bank profitability, green credit does not impact ROE (Return on Equity) and NIM (Net Interest Margin), but it does have a negative effect on ROA (Return on Assets). Banks that allocate a significant portion of their credit distribution to green initiatives tend to experience a decline in their profits. (iii) Bank size has a positive impact on the allocation of green credit, with larger banks dedicating a greater portion to the distribution of green credit. Larger banks possess more capital and extensive networks, making them better equipped to address potential risks compared to smaller banks. (iv) Meanwhile, government ownership and good corporate governance in banks do not influence the proportion of green credit distribution. The author recommends that the government make corrections to existing green financing programs, to cultivate a green credit ecosystem in Indonesia. One concrete step that can be taken is to support government-owned banks in becoming pioneers in the distribution of green credit in Indonesia. Key Words:Green Credit, Bank Performance, Credit Risk, Profitability, Bank Size, State-owned Bank, Good Corporate Governance

Date: 2024
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