The impact of green lending on credit risk in Nepalese commercial banks

This study explores the relationship between green lending and credit risk among Nepalese commercial banks. Using an unbalanced panel dataset comprising 420 annual observations from fiscal year 2008/09 to 2023/24, the study employs a fixed-effects panel regression model with robust standard errors. The results reveal a significant negative relationship between green lending and non-performing loans (NPL) ratios, indicating that banks with higher levels of green lending tend to exhibit lower credit risk. This finding is consistent with emerging evidence from the sustainable finance literature, particularly in developing economies where regulatory support and environmental screening mechanisms may contribute to lower default risk. The findings suggest that green lending is associated with lower NPL ratios and may contribute to improved portfolio quality. The study contributes to the growing literature on sustainable finance and provides insights for policymakers and financial institutions seeking to promote environmentally responsible lending practices in developing economies such as Nepal.