Impact of Green Finance on the Provision and Reserve of Banks

Abstract

This study inspects the influence of green finance on the provision and reserve of banks. Using a comprehensive dataset spanning several years from 2015 to 2023, this study employs econometric models to evaluate the impact of green finance on the provision and reserve of banks. Specifically, banks with higher involvement in green finance tend to allocate greater provisions and maintain larger reserves. Furthermore, the study examines how investments in green finance influence bank provisions and reserves. Key green finance sectors, alternative energy (AE), energy efficiency (EE), renewable energy (RE), waste management (WM), recycling and manufacturing of recyclable goods (RMGM), green industry and establishment (GIE), environmentally friendly brick production (EFBP), and other green investments (GOFI), significantly affect provision maintenance (PM). Additionally, AE, RMGM, GIE, EFBP, and GOFI drive changes in required provisions (RP), while AE, RE, WM, RMGM, GIE, and GOFI impact the statutory liquidity reserve eligible asset percentage (SLREAP). These findings underscore the importance of green finance in banking. Overall, this research advances the literature on finance and sustainability by empirically linking green finance to banking reserve and provision systems.