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This study evaluates the credit risk of sustainable loans in a preferential capital requirement programme. We utilise loanlevel data from a uniquely implemented programme from Hungary, applying logistic regressions and survival analysis techniques. We observe a significantly reduced credit risk for firms with renewable energy and electromobility loans, even after accounting for all relevant covariates. Models incorporating green characteristics predict a substantially lower credit risk for firms with green loans compared to models excluding green characteristics. These results are economically significant and robust to model specifications, alternative definitions of green firms and varying default definitions. We show that green loans' lower probability of default can justify a reduction of several percentage points in capital requirements

Author

Listed:
  • Balint Vargedo

    (Magyar Nemzeti Bank (Central Bank of Hungary))

  • Csaba Burger

    (Magyar Nemzeti Bank (Central Bank of Hungary))

  • Donat Kim

    (Magyar Nemzeti Bank (Central Bank of Hungary))

Abstract

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Suggested Citation

  • Balint Vargedo & Csaba Burger & Donat Kim, 2025. "This study evaluates the credit risk of sustainable loans in a preferential capital requirement programme. We utilise loanlevel data from a uniquely implemented programme from Hungary, applying logist," MNB Working Papers 2025/2, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:wpaper:2025/2
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    File URL: https://www.mnb.hu/en/publications/studies-publications-statistics/working-papers-1-1/wp-2025-2-balint-vargedo-csaba-burger-donat-kim-green-firms-are-less-risky-results-from-a-preferential-capital-requirement-programme-in-emerging-europe
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    More about this item

    Keywords

    sustainable finance; financial stability; capital requirement; green finance; default probability; green transition; central bank mandates.;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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