Empirical Study On The Impact Of Green Credit On The Profitability Of Commercial Banks

Since the reform and opening up,with the rapid development of China’s economy,the problem of environmental pollution has become more and more serious.Based on this,our country proposed to turn the clear water and green mountains into gold and silver mountains,and vigorously develop the green economy.Therefore,China vigorously advocates banks to carry out green credit,but commercial banks lack experience in carrying out green credit business,which increases operating costs in the process and brings pressure to banks’ operation.On the other hand,with the establishment of the financial system,the third-party payment and investment and financing activities have both impacted the operation of banks and weakened their profitability.Based on this,this paper proposes the impact of green credit on the profitability of banks,and what are the influencing paths behind it? All these questions are worthy of discussion and research.This paper mainly includes six parts.The first part is the introduction,which mainly introduces the research background,research significance,literature review at home and abroad,research objective,research content,possible innovation and shortage and technical route.The second part introduces the four theoretical bases of green credit and commercial banks’ profitability,which are financial sustainable development theory,corporate social responsibility theory,equatorial principle theory and environmental risk management theory.The third part is theoretical analysis.Based on the three influence paths of environmental risk,green reputation and operating cost,this part analyzes the impact of green credit on bank profitability through these three influence paths and puts forward a preliminary inference.If the positive promoting effect of the first two influencing paths is dominant,green credit has a positive impact on bank profitability.If the negative impact of the third influencing path is dominant,green credit has a negative impact on the profitability of commercial banks.This lays the foundation for the empirical analysis and the significance test of green credit on the three influence paths in the following paper.The fourth part describes the analysis of China’s green credit and the profitability of commercial banks,mainly including: the development of China’s green credit system,some of the green credit measures and products implemented by commercial banks,profitability,green credit scale,and the existing problems in the development of green credit business in China’s commercial banks.The fifth part is the empirical test.Based on the panel data of 14 commercial banks in China from 2011 to 2019,the paper empirically studies the impact of green credit on the profitability of commercial banks in China through the construction of an econometric model.Based on the three influence paths,this paper empirically tests the impact of green credit on the non-performing loan ratio,basic earnings per share and business expense to income ratio of commercial banks in China,in order to explore whether the impact of green credit on the asset quality,operating cost and green reputation of commercial banks is significant.Through the significance test of these three influence paths,the paper demonstrates the direction and significance of the impact of green credit on bank profitability.The sixth part is the research conclusion and related policy suggestions.Based on theoretical analysis and empirical test,this paper draws the following conclusions :(1)The green credit business of banks has gained new profit growth points and significantly improved profitability.Green credit has significantly reduced environmental risks by inhibiting the non-performing loan ratio,increased basic earnings per share and significantly improved the green reputation of banks.Although it has increased operating costs,the negative effect of this influence path is not significant.Therefore,this paper proposes that the first two influence paths play a dominant positive promoting role,and concludes that green credit improves the profitability of banks on the whole.(2)The specific explanation is as follows: Banks may face higher credit risks and environmental risks due to environmental pollution problems when they lend to "two,high and surplus" industries.The bank guides credit funds to green industries,such as clean energy and new energy,which significantly reduces environmental risks and improves the profitability of the bank.Green credit has significantly improved the profitability of banks through this impact path.In the process of green credit,banks improve their green reputation,and the reputation premium generated enhances their profitability.Green credit has significantly improved the profitability of banks through this impact path.There are trial-and-error costs,investigation costs,training costs,labor costs and opportunity costs in green credit.The cost of these inputs is to ensure the green credit quality and profitability of the bank.Through empirical test,this paper finds that green credit business of banks increases operating costs,but the estimated results are not significant.Green credit has less negative impact on bank profitability through this influence path.(3)Through the empirical test of the significance of the three influencing paths,this paper concludes that green credit plays a dominant role in promoting the profitability of banks through the first two influencing paths.Therefore,green credit has a significant positive impact on the improvement of the profitability of banks in general.Based on the above conclusions,this paper puts forward the following suggestions: First,Chinese government departments should improve the laws and regulations of green credit;Financial supervision departments need to strengthen the supervision of green credit information;Environmental protection departments should strengthen the disclosure of enterprises’ green project information.The actions of these tripartite departments help reduce the operating costs of banks.Second,banks should first establish an online platform covering all kinds of enterprise information,in order to reduce the cost of pre-loan investigation.Next,banks need to establish a sound training system for green credit professionals,in order to reduce the cost of training loans;Finally,banks should improve the environmental risk management system and innovate green credit products in order to reduce the labor cost after lending.In addition,banks should enhance their green initiative in order to enhance their green reputation.