DOI: https://doi.org/10.14710/dijb.6.1.2023.50-56

Green credit and bank performance in Indonesia

1Department of Economics Development, Universitas Sriwijaya, Indonesia, Indonesia

2Department of Management, Universitas Sriwijaya, Indonesia, Indonesia

3Department of Accounting, Universitas Sriwijaya, Indonesia, Indonesia

Open Access Copyright 2023 Diponegoro International Journal of Business under http://creativecommons.org/licenses/by-sa/4.0.

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Abstract
A new challenge for the banking sector In Indonesia is integrating social aspects in firm performance reports. Green Credit is expected to substantially drive capital allocation to sustainable development which eventually will impact the pattern of production and consumption in the future. In this study, using commercial bank data in Indonesia, we estimate an empirical model of the effect of green credit on bank performance in Indonesia during the period 2015 to 2021. We employ a panel dynamic model using the Generalized Method of Moments (GMM). We differ bank performance twofold which are return on asset (ROA)). The main finding shows that green credit significantly abates bank performance since some green economy projects focus on the public welfare. Therefore, green credit could not result in high returns. The government should formulate a policy of providing incentives to banks that offer green credit. Thus, it could encourage the willingness of banks to lend more funds to the green economy.
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Keywords: green credit, bank performance, sustainable development, green economy

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