Can Green Credit Decrease Commercial Bank Risk? A Quasi-Natural Experiment based on COVID-19 in China

Abstract

This paper examines the impact of green credit on commercial bank risk and its mechanism of action through a quasi-natural experiment based on the COVID-19 construct. We find that commercial banks implementing green credit have lower risk levels after the epidemic, and the results remain robust after a series of robustness tests. Further mechanism analysis finds that the effect of green credit on risk is due to the enhancement of bank reputation by green credit, while the financial performance of banks does not show a mediating effect. We also find that the risk of small and medium-sized banks, non-listed banks, and banks in epidemic areas is more significantly affected by green credit.