Green credit adoption and bank competitiveness in Vietnam: the role of bank stability and government ownership

This study examines whether green credit adoption enhances bank competitiveness in Vietnam and investigates the mechanisms underlying this relationship. Using a panel of 31 Vietnamese commercial banks over 2012–2023 and applying a two-way fixed effects (TWFE) model, we test three main hypotheses: (i) green credit adoption improves bank competitiveness; (ii) financial stability acts as a mediating transmission channel; and (iii) government ownership moderates this relationship. Results show that green credit adoption significantly strengthens bank competitiveness, measured by market power. Mediation analysis indicates that financial stability, proxied by the Z-score, partially transmits this effect, suggesting that green lending improves capital strength and risk profiles, thereby solidifying competitive positions. However, state ownership weakens the positive impact, implying that state-owned banks are less effective in converting green lending into market-based advantages. Additional heterogeneity findings highlight that green credit adoption is not uniformly transformative but is conditional on institutional and economic contexts. These insights lead to policy recommendations for regulators and banks to foster green credit provision activities, reinforce financial stability, and promote sustainable competition in developing markets. Overall, the study demonstrates that green credit can generate tangible competitive benefits, but these gains critically depend on institutional characteristics within emerging banking systems.