The End: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability

Chan‐Lau, Jorge A.; Gravelle, Toni

doi:10.2139/ssrn.876385

Cited by 19 publications

(2 citation statements)

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“…The instability of the financial system as experienced in recent years, that is, the 2007–2009 financial crisis, is often linked to credit risk (Schmitt et al 2014). And the financial system is safer if banks carry less of the overall credit risk (Chan‐Lau & Gravelle, 2005). The Chinese economy is reliant on bank lending, which represents the main source of financing, whereas capital markets play a limited role.…”

Section: Introductionmentioning

confidence: 99%

Bank green lending and credit risk: an empirical analysis of China's Green Credit Policy

et al. 2022

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This study empirically investigates the relationship between banks' green lending and their credit risk, and how Chinese green finance regulations contribute to the solvency of individual banks and the resilience of the financial system. Analysing a sample of 41 Chinese banks from 2007 to 2018, we find that the association between a bank's (relative) green lending as a proportion of its overall loan portfolio, and its credit risk, depends critically on the size and structure of state ownership. While the implementation of China's Green Credit Policy reduces credit risk for the major state‐controlled banks, it increases credit risk for the city and regional commercial banks. This performance difference appears largely due to information and expertise asymmetries, with the city and regional commercial banks having less access to information and expertise necessary to evaluate the credit risk of green lending. Understanding this phenomenon can help policymakers tailor green finance policies according to banks' characteristics. It also suggests that mechanisms and platforms for the city/regional commercial banks to learn from the major state‐controlled banks could be beneficial.

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