The Role of Green Financing on Bank Performance and Stability: Literature Review

This study aims to analyze the role of green financing on bank performance and stability and evaluate its function as a strategic mechanism in integrating sustainability practices with financial performance. The method used is a literature review of 18 international journal articles relevant to the topic of green financing in the banking sector. These articles were analyzed using a thematic approach and narrative synthesis to identify patterns of relationships between green financing, financial performance, risk, bank stability, and sustainability performance. The results show that green financing is consistently positively correlated with environmental performance, stability, and sustainability performance of banks. Furthermore, empirical findings based on panel data indicate that increasing green exposure is associated with an increase in intermediation spreads and a decrease in default risk. Green financing is also influenced by internal factors such as governance and financial capacity, as well as external factors such as regulations and policy incentives. Green financing plays a strategic role in supporting bank performance and stability while strengthening the integration of sustainability into banking business models. This study contributes to the sustainable finance literature by integrating environmental, financial, and risk dimensions within a single analytical framework.