Impact of Green Credit Policies on Risk-Taking Behaviors in China’s Systemically Important and Non-Systemically Important Banks

HRMARS - Purpose: Systemically important banks (SIBs) play a critical role in financial stability and are key implementers of green credit policies in China. This study examines the impact of green credit policies on the risk-taking behavior of Chinese banks by comparing systemically important banks (SIBs) with non-systemically important banks (non-SIBs). The analysis is framed by information asymmetry and risk–return trade-off theories and draws on institutional and stakeholder perspectives to explain why systemic importance shapes the effect of green credit on risk-taking. Design/methodology/approach: This research utilizes data from 36 Chinese banks from 2010 to 2023, employing fixed-effect panel regressions and lagged risk-taking data to control for endogeneity. The sample is split into two periods for robustness testing: 2010–2015 and 2016– 2023. Findings: The results show that green credit has an insignificant effect on overall bank risk-taking activities. However, it significantly reduces the risk-taking of systemically important banks (SIBs), particularly after the introduction of the Guidelines for Green Finance in 2016. For SIBs, increases in the share of green credit are associated with economically meaningful declines in non-performing loan ratios. Research limitations/implications: This study highlights the heterogeneous impacts of green credit on different types of banks. By linking these heterogeneous effects to the combined insights of information asymmetry, risk–return trade-off, institutional, and stakeholder theories, this study provides valuable insights for policymakers and bank managers to improve risk management and support sustainable development in China’s banking sector. Practical implications: This study suggests that green credit policies are more effective in curbing excessive risk-taking among systemically important banks (SIBs) than among non-systemically important banks, implying that regulatory frameworks and policy incentives may need to be differentiated according to bank size, systemic importance, and risk profile to enhance stability of the financial system in China. For bank managers, the findings underscore the importance of integrating environmental risk assessments and sustainable financing principles into corporate governance and credit risk management. Originality/value: While existing literature primarily explores the relationship between green finance and financial performance or stability, this research examines how systemic importance moderates this relationship. By conducting robust split-period analysis around the implementation of the 2016 Guidelines for Green Finance, this study offers a deeper understanding of policy effectiveness and institutional heterogeneity in the Chinese banking system.