Impact of green credit policy on the operation of Vietnamese commercial banks: An empirical study using difference-in-differences model

Green credit is one of the important activities that commercial banks show their responsibility to the environment. In Vietnam, the Government and the State Bank of Vietnam have implemented numerous regulations pertaining to green credit in order to encourage and support environmentally-friendly financial activity. Against a backdrop of diverse and often conflicting perspectives on the economic implications of sustainable development and EGS principles, empirical analysis of green finance policies is critically important. The article examines the effects of the Green Credit Policy on commercial banks' operations in Vietnam using panel data from financial statements and annual reports of commercial banks from 2012 to 2022. Specifically, the study focuses on changes in profits, cost management, non-performing loan and capital adequacy ratio. The analysis is conducted using difference in differences (DID) model, with the sample divided into groups that implemented the policy and groups that did not. The study's findings indicate the following impacts: (1) there is no empirical evidence supporting the notion that the green credit policy increases the profitability of commercial banks, (2) there is no empirical evidence suggesting that the green credit policy reduces the cost-to-income ratio, (3) the implementation of the green credit policy does have a negative impact on non-performing loan ratio of banks. The research findings serve as the foundation for the authors to propose several suggestions for commercial banks and the State Bank of Vietnam.