EFFECTS OF GREEN FINANCE ON NON PERFORMING LOAN OF BANKS: EVIDENCE FROM BANGLADESH

Abstract

The banking sector in Bangladesh has been suffering from a high level of non-performing loans (NPLs). In recent years, incorporating green finance (GF) practices within banking institutions has received considerable attention as a potential solution to improve their loan performance. However, despite the extension of GF practices, there have been very few studies on the impact of GF on NPL and the relationship between GF and NPL in Bangladesh. This study, therefore, seeks to examine the effects of bank’s green finance schemes on their loan performance. This quantitative study employs the panel data of the banks from 2015 to 2023 and focuses on variables related to GF and NPL to serve this objective. Data validity was justified using the unit roots and collinearity tests, such as variance influence factor and tolerance level. Accordingly, this study employs the panel least square (PLS), panel ordinary least square (POLS) and fixed effect model (FEM), and quantile regression to examine the impact between these sets of variables. The correlation between GF schemes and NPL has been determined. The study reveals that GF has significant effects on NPL since p values for the significant green finance variables are less than 0.10 (P ≤.10) at the 0.10 level, less than 0.05 (p≤0.05) at the 0.05 level and less than 0.01 (p≤0.01) at the 0.01 level. The results of this study suggest that taking the GF scheme into the banking investment would reduce NPLs and help design the policymaking of the government, banks, and other stakeholders.