The Impact of Green Credit on the Profitability of Commercial Banks: An Empirical Study based on the Chinese Banking Industry

Abstract

Within the framework of the 'Carbon peak and carbon neutrality goals' objective, the role of green credit as a crucial green finance instrument is progressively emerging as a principal path for the evolution and progress of commercial banking institutions. Nonetheless, the real effect of green credit on bank profitability and the success of policy measures remains a matter of debate. The study develops both a fixed-effects regression model and a double-difference model (DID), utilizing panel data from China's A-share listed banks between 2007-2023, to empirically investigate how the green credit ratio influences the profitability (ROA) of commercial banks, and to delve deeper into the moderating impact of green finance policies and the diversity of bank types. Investigations reveal that green credit adversely affects the overall profitability of the sample, hinting at potential hurdles for green initiatives like extended profit cycles and elevated short-term risks; in the case of joint-stock banks, the post-policy interaction term is notably positive, implying that while the green financial policy enhances the profitability of these banks to some degree, its impact remains somewhat restricted. The results offer a detailed empirical foundation for assessing green credit efficiency and refining policies.