Green credit and bank’s risk-taking: evidence from China

Abstract

Purpose

This study uses data from the Chinese banking sector to explore the relationship between green credit and risk-taking in commercial banks. It also examines whether the level of regional green development acts as a moderator regarding this relationship.

Design/methodology/approach

Using a dataset composed of annual observations from 57 Chinese commercial banks between 2008 and 2021, this study employs both piecewise and curvilinear models.

Findings

Our results indicate that when the scale of green credit is low (<0.164), it increases the risk-taking of commercial banks. Conversely, when the scale of green credit is high (>0.164), it reduces the risk-taking of commercial banks. Moreover, this nonlinear relationship impact exhibits bank heterogeneity. Furthermore, the results show that the level of regional green development and local government policy support negatively moderate the relationship between green credit and commercial bank risk-taking. Furthermore, we find that green credit can directly enhance the net interest margin of commercial banks.

Originality/value

This study is the first to provide evidence of a nonlinear relationship between green credit and risk-taking in commercial banks, and it identifies the significant roles of regional green development level and local government policy support in the Chinese context.

Citation

Song, J., Cao, W. and Shan, Y.G. (2024), "Green credit and bank’s risk-taking: evidence from China", International Journal of Managerial Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJMF-03-2024-0144