Role of Banking Sector Performance in Renewable Energy Consumption: A Comparative Analysis of OECD Countries and the Western Balkans

The paper explores the impact of banking sector performance on renewable energy consumption and focuses on a panel of 43 countries, including 38 OECD countries and five Western Balkan countries for the period 2010-2022.Recognizing the crucial role of the banking sector in financing renewable energy investments, the study evaluates the influence of five key banking sector performance indicators: the ratio of cost to revenue, asset quality, return on assets, financial stability, and return on equity.The research employs both random and fixed effects models to analyze panel data for the OECD and Western Balkan countries.The Hausman Test results indicated that the Random Effects model was the most suitable for the OECD data, as it efficiently uses within and between country variations without correlation issues.For the Western Balkans, the Fixed Effects model was preferred, as it controls for unobserved heterogeneity that could bias the results.This methodological choice ensures robust and accurate econometric analysis tailored to the specific data characteristics of each region.The key findings of the study reveal that within OECD countries, there is a positive relationship between financial stability, the ratio of cost to revenue, and the return on assets with renewable energy consumption.On the other hand, our analysis shows that in the Western Balkan countries, the quality of banking assets stands out as a key factor influencing renewable energy consumption.These findings emphasize the banking sector's critical role in achieving sustainable energy transitions and show that specific financial policies, such as providing green loans, offering tax incentives for renewable energy investments, and implementing more strict asset quality regulations, could improve the effectiveness of renewable energy investment across different regions.