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The Role of Green Credit in Bank Profitability and Stability: A Case Study on Green Banking in Indonesia

Author

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  • Sutrisno Sutrisno

    (Department of Management, Faculty of Business and Economics, Universitas Islam Indonesia, Yogyakarta 55283, Indonesia)

  • Agus Widarjono

    (Department of Economics, Faculty of Business and Economics, Universitas Islam Indonesia, Yogyakarta 55283, Indonesia)

  • Abdul Hakim

    (Department of Economics, Faculty of Business and Economics, Universitas Islam Indonesia, Yogyakarta 55283, Indonesia)

Abstract

Green credits are one of the alternative bank loans to the traditional sector. In addition, this green credit supports sustainability and environmental issues. This paper analyzes the influence of green credits on bank profits and stability in Indonesia. This study analyzed banks in Indonesia that provided green credits. Of 140 banks, only 35 banks disbursed green credits starting in 2019. Our study examined all banks providing green credit from 2019 to 2022 using annual data. The results of the study showed that green credits have a positive effect on profits, but green credits have no effect on bank stability. Small banks benefit from green credits in encouraging profitability. In addition, the profitability and stability of banks in Indonesia are greatly influenced by strong bank fundamentals such as capital and efficiency. This study has important implications in both theoretical and practical aspects. Because green credit supports profitability, the bank must diversify the loans in both the traditional sector as well as new sectors that are related to environmental issues and development sustainability following the theory of loan diversification. For practical implication, the Indonesian Financial Service Authority as a policymaker requires each bank to provide financing related to green credits.

Suggested Citation

  • Sutrisno Sutrisno & Agus Widarjono & Abdul Hakim, 2024. "The Role of Green Credit in Bank Profitability and Stability: A Case Study on Green Banking in Indonesia," Risks, MDPI, vol. 12(12), pages 1-15, December.
    • Handle: RePEc:gam:jrisks:v:12:y:2024:i:12:p:198-:d:1540350
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    References listed on IDEAS

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    3. Eissa A. Al-Homaidi & Mosab I. Tabash & Najib H. S. Farhan & Faozi A. Almaqtari, 2018. "Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1548072-154, January.
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