Impact of Green Loans on Financial Performance: Evidence from Sri Lankan Licensed Commercial Banks

Abstract

To examine the impact of Green Loans on the Financial Performance, through examining the complex relationship between green credit and the financial performance of licensed commercial banks. This study includes ten private sector banks and two public sector banks for the period 2015 to 2022. Financial performance measured using Return on Assets (ROA) and Return on Equity (ROE). Regression analysis through two models for ROA and ROE were used for analyzing the acquired data and in addition normality test, hausman test and interdependency test were performed. As there are several articles on green banking concept and how its impact on financial and non-financial performances, this study investigates the relationship between green loans and financial performance, and the impact of green loans and financial performance. Although the previous literatures’ results are inconclusive, this research study shows that there is a significant negative impact of Green Loans on the Financial Performance of the Licensed Commercial Banks in Sri Lanka. This research navigates the complex landscape of green loans and their impact on the financial performance of Sri Lankan banking sector, providing nuanced insights into both academic discourse and practical decision-making in the financial sector.