MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF DANANG
UNIVERSITY OF ECONOMICS

FINAL REPORT

SCIENTIFIC RESEARCH PROJECTS

THE IMPACT OF GREEN CREDIT ON THE PROFITABILITY

OF COMMERCIAL BANKS IN VIETNAM

Field of science and technology: Finance & Banking

Student Representative: Tran Huynh Nhu
Major: Banking
Instructor: Dr. Vo Hoang Diem Trinh

Danang, May 2025

 TABLE OF CONTENTS
INTRODUCTION 1
1. Research background: 1
2. Research objectives and Research question: 3
3. Research scope: 3
4. Research methodology: 3
5. Research structure: 3
CHAPTER 1. LITERATURE REVIEW 5

1.1. Overview of green credit: 5

1.2. Overview of bank profitability: 7

1.3. Empirical studies on green credit and bank profitability: 9

1.4. Hypothesis development: 15

CHAPTER 2. RESEARCH METHODOLOGY 18

2.1. Data sources: 18

2.2. The variables: 18

2.2.1. Dependent variable: 18

2.2.2. Independent variable: 18

2.2.3. Control variables: 19

2.3. Research method: 20

2.4. Research model: 21

CHAPTER 3. RESULTS 22

3.1. Descriptive statistics of data: 22

3.2. Empirical results: 24

3.2.1. Main result: 24

3.2.2. Parallel Trend Test: 28

3.2.3. Robustness test: 31

CHAPTER 4. DISCUSSION 33

4.1. Conclusion and implications: 33

4.2. Limitations: 35

REFERENCES 36
 LIST OF TABLES
Table 1. Summary of empirical studies 12
Table 2. Variable name and definition 19
Table 3. Full sample descriptive statistics 22
Table 4. Descriptive statistics by treatment and control group 23
Table 5. Correlation matrix 24
Table 6. Baseline results (using 2018 as dividing point) 25
Table 7. Robustness test 31
 INTRODUCTION
1. Research background:

Due to the surge of industrial civilization in the 18th century, climate change,
depletion of natural resources and environmental pollution have gradually become
serious issues around all over the world. These problems not only affect the human
living condition but also have a negative influence on the sustainable development of
businesses. Therefore, sustainable development strategies were driven to ensure the
coordinated development of the three dimensions of man, economy, and nature and
started to promote green and civilized growth.

A green environment is becoming a crucial goal when there are more and more
environmental protection projects around the world with the purpose of pursuing
sustainable development. The green revolution that nations are pursuing encourages
economic sector growth only when it does not cause adverse environmental
consequences. In this process, as the main source of finance for investments and
project development across all economic sectors, greening the system of banks and
financial institutions plays a vital role (Derbali, 2021). Therefore, from a long-term
standpoint, the application of green credit, a financial instrument with both public
welfare and commercial nature, can assist in allocating funds for businesses engaged
in energy and environmental conservation, thereby promoting sustainable economic
growth (Yuan B, 2024).

In recent years, Vietnam has been regarded as one of the nations most heavily
affected by climate change. The progress of poverty reduction, and the sustainable
development of the nation are threatened by the effects of climate change in Vietnam.
Acknowledging these issues and the importance of green credit implementation, the
State Bank of Vietnam (SBV) has issued a number of regulations and policies in recent
years to support the growth of green credit and to implement the government's and the
state's policies and strategies on green growth and sustainable development. The first
of these is Directive No. 03/CT-NHNN, which focuses on promoting green credit and
managing environmental and social risks in credit granting activities. Subsequently, on
August 6, 2015, the SBV issued Decision No. 1552/QD-NHNN on the Banking

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Industry's Action Plan to Implement the National Green Growth Strategy for the period
2015-2020; on August 7, 2018, Decision No. 1604/QD-NHNN on the Approval of the
Project to Develop Green Banking in Vietnam; and on August 31, 2018, Decision No.
1731/QD-NHNN on the Banking Industry's Action Plan to Implement the 2030
Agenda for Sustainable Development.

Although implementing green credit business contributes to the reduction of

negative influences on the environment and the promotion of the sustainable
development of banks, researchers assume there are several factors and potential risks
that can affect the amount of green credit, making it less appealing than traditional
credit. According to Zhang (2018), a significant amount of capital must be needed by
banks to introduce green credit. Therefore, holding a significant capital enables banks
to have more financial resources to manage green credit business effectively. A lot of
costs are required for green credit, including human resource training, technological
advancements,... (Wanting, 2020). Because green credit is a new concept, the
framework for implementing green credit has not been widely adopted by developing
countries, including Vietnam. Furthermore, credit risk in green credit businesses can
occur because these practices require a longer process than common ones. Del Gaudio
et al. (2022) claimed that granting green loans does not necessarily help banks improve
their financial performance. Therefore, implementing green credit may be in
opposition to the profitability of banks. Findings of the numerous domestic and foreign
research works that have examined the relationship between green credit and bank
performance are still not fully consistent. Although some research indicates that green
lending has a positive impact on bank profitability, others reveal that it also has neutral
or even adverse effects, especially in developing countries where green finance
institutions are still immature. Research such as Pham et al. (2025) and Nguyen et al.
(2024) has predominantly tested the moderating role of green credit or indirect
influences of green credit on performance indicators within the Vietnam setting.
However, empirical studies attempting to apply strict econometric methodology to
directly estimate the causal relationship between green credit usage and the
profitability of banks are scarce. To measure the success of green credit
implementation, most of the previous research in Vietnam has yet to reflect policy

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turning points, e.g., Decision 1604/QĐ-NHNN in 2018. With the aim to fill in that gap
and give new empirical findings and policy implications for sustainable banking
development in Vietnam, this research examines the direct impact of green credit on
bank profitability.

2. Research objectives and Research question:

The purpose of this research is to explore the impact of green credit on

commercial banks profitability by analyzing how implementing green credit influences
bank profitability, thereby, offering implications for the further development of green
credit in Vietnamese commercial banks.

Accordingly, our research question is:

RQ1: How does green credit affect profitability of Vietnamese commercial

banks?

3. Research scope:
- Content: The study investigates the impact of green credit on the
profitability of commercial banks in Vietnam.
- Geographical scope: The analysis focuses on commercial banks within
Vietnam.
- Time frame: This study covers the period from 2015 – 2024.
4. Research methodology:

This paper uses the Differences-in-Differences (DID) to assess the impact of

green credit implementation on the Vietnamese commercial banks’ profitability, as
measured by return on assets (ROA), with a sample of 28 commercial banks over the
period 2015-2024 and 280 annual observations. In which, financial data are collected
from audited financial statements, macro-economic data from the World Bank and
International Monetary Fund (IMF), and the information of implementing green credit
from public announcements. In this study, the dependent variable is ROA, the
explanatory variable is TREAT*POST as dummy variables representing commercial
banks' green loans, and control variables are bank size (SIZE), non-performing loan

3
ratio (NPL), capital adequacy ratio (CAR), loan-to-deposit ratio (LDR), and GDP
growth rate (GDP).

5. Research structure:

The outline of the research is as follows:

CHAPTER 1. LITERATURE REVIEW

CHAPTER 2. RESEARCH METHODOLOGY

CHAPTER 3. RESULTS

CHAPTER 4. DISCUSSION

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 CHAPTER 1. LITERATURE REVIEW
1.1. Overview of green credit:
In accordance with the 2018 Green Credit Principles (henceforth referred to as
GLP 2018) published by the Asia Pacific Loan Market Association and the Loan
Market Association, green credit is any kind of loan given expressly to finance or
refinance entirely or in part new and/or existing eligible green projects. According to
GLP 2018, these categories include: green transportation; energy efficiency; renewable
energy; environmentally friendly and economically adaptable products and production
technologies; green buildings; sustainable agriculture and forestry; pollution
prevention and control; and sustainable water management and wastewater treatment.

Green credit is a bank loan approach that does not promote environmentally
polluting companies. Green credit, as defined by Zhao & Xu (2012), is a type of loan
that banks and other financial organizations offer to companies in order to incentivize
them to undertake eco-friendly projects, lower emissions, and conserve energy. Green
credit offers low interest rates and preferential capital for projects that reduce
greenhouse gas emissions, protect the environment, and move toward sustainable
development and a green growth economy. As a result, green credit is one of the ways
the financial industry can use financial tools to address global environmental and
social issues (Aizawa & Yang, 2010). Moreover, green credit is a manifestation of
sustainable finance aimed at sustainable development (Longxing et al., 2011). On the
institutional side, the Asian Development Bank (2013) defines green credit as a series
of policies, systematic arrangements and implementation by banks to provide loans or
other financial instruments that promote energy conservation and emission reduction.
According to the perspective of the Organization for Economic Cooperation and
Development (OECD), green finance is understood as a source of finance provided to
projects to achieve economic growth, while reducing pollution and greenhouse gas
emissions, minimizing waste and improving the efficiency of natural resource use.

The concept of green credit is also introduced in some nations. China defined
the term green credit as follows: Green credit is a green financial policy, referring to a
series of policy and institutional agreements to attract private capital investment in
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green industries such as environmental protection, energy saving, clean energy through
financial services including loans, bonds, stocks, insurance, etc. In Bangladesh,
offering credit to individual consumers and companies with environmentally conscious
activities is known as "green credit." Additionally, the phrase "green credit" refers to
the mechanism through which the financial sector makes investment choices that result
in greater financial backing for sustainable economic activities. Green credits, in the
context of Indonesia, refer to a special kind of bank loan that is channeled to the
traditional sector, promoting activities that are sustainable and environmentally
friendly.

In Vietnam, Pham Xuan Hoe (2015) suggested green credit as any credit
utilized to finance and refinance part or all of green projects and is expressed in the
form of term loans or revolving credit facilities. In the Law on Environmental
Protection 2020 issued by the National Assembly, the concept of green credit is
stipulated in Clause 1, Article 149. Accordingly, green credit is credit granted for the
following investment projects: efficient use of natural resources, response to climate
change, waste management, pollution treatment, improvement of environmental
quality, restoration of natural ecosystems, conservation of nature and biodiversity,
creation of other environmental benefits.

Intensive polluting industries can be efficiently guided out of and into super
energy efficient and environmentally friendly businesses through the use of green
credit policies which aid in financing them. By fostering innovation, these policies also
increase building modernized industrial structures, green total factor productivity, and
environmental quality. Meanwhile, thanks to the enhancement of innovative potential
and the modernization of the industrial structure, environmental quality and green total
factor productivity are significantly increased. (Pezzey and John, 1992). At a micro-
level, green credit schemes not only improve the financial and ecological results of the
financial institutions, but also help them monitor the fund receivers more efficiently.
This, in turn, contributes significantly to high quality sustainable development (Ding
X, 2022). However, in the study of Ding X (2022), the non-performing loan ratio and
ROE are affected negatively by green credit policy implementation. Consequently,

6
although there are guidelines for carrying out the green credit policy, its
implementation does not fully facilitate business development.

1.2. Overview of bank profitability:

Bank profitability is a measure of how well a bank makes use of its resources to
generate earnings prior to the payment of contractual commitments. Bank revenue
comes from two primary sources. The first one is operating income, which includes net
gains from trading and derivatives, net gains from other securities, net insurance
income, and net fees and commissions. The second resource is interest income, which
represents the interest the bank receives from its assets. Interest paid on its liabilities
and non-interest costs like staff and operations expenses are the primary sources of its
costs. A bank's primary assets are the securities it owns and the loans it makes to
people, companies, and other entities. Deposits and money borrowed from clients,
other banks, and other short-term borrowings are a bank's main liabilities. Therefore,
for policymakers, business executives, and numerous others who depend on the
banking industry, research on bank performance and profitability is crucial. Many
stakeholders, including investors, analysts, management, regulators, customers,
depositors, rival banks, and the general public, have expressed worry about banks'
performance for a variety of reasons. From a managerial perspective, bank
management assesses the success of their plans, regulations, and choices using
profitability metrics. They can pinpoint areas for development, allocate resources as
efficiently as possible, and make informed decisions to improve the bank's overall
performance by examining these metrics. Profitability is a crucial indicator from the
perspective of investors since it shows how well a bank can provide returns on their
capital.

Several methods have been used to evaluate bank profitability, and financial
ratios are the most widely used and effective. This perspective is supported by
Mamatzakis and Remoundos (2003), whose analysis on Greek commercial banks
determined important elements affecting bank performance. They explained that
financial ratios showed not only profitability over the period, but also served as a
reliable indication for assessing the bank’s financial performance. These ratios capture,

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through an automated evaluation of financial data and accounting records, vital
information pertaining to the bank’s economic state, allowing stakeholders to
determine the effectiveness of the operations and sustainability of the bank. In
addition, financial ratios are helpful to compare performance among institutions with
different sizes, serving as a benchmark for the rest of the industry. For example, the
parameters of a specific bank can be measured against the average of the entire sector,
which Dimitrios and Zoe (2000) and Guru et al. (2002) have proved as a valid method.
These comparisons enable financial institutions to find their competitive advantages
and disadvantages, thus encouraging proactive measures consistent with the standards.

Several metrics are used as profitability indicators in the empirical literature on

banking: Return on assets (ROA), Return on equity (ROE), Net interest margin (NIM),
and Profit margin (BTP/TA). For instance, San & Heng (2013) employed three ratios
—ROA, ROE, and NIM—that reflect profitability to study the determinants of
Malaysian commercial bank profitability. Besides, based on 23 Bangladeshi
commercial banks' data for the period 2013–2017, Islam & Rana (2016) also employed
ROA, ROE, and NIM ratios to ascertain bank profitability. Besides, according to
Bashir (2003), the author used three measures of banks’ performance, especially
banks’ profitability: the profit margin (BTP/TA), return on assets (ROA), and return on
equity (ROE).

Return on asset (ROA)

ROA is defined as a financial ratio that indicates how much profit a bank
generates from its assets, which also means that it reflects a bank’s ability to use assets
effectively to gain net profit. Therefore, ROA can be utilized to determine the
efficiency of bank management in converting assets into revenue (Goddard et al.,
2004). According to Yuan, B (2024), due to the reflection of banks’ profitability, the
higher ROA, the stronger the profitability of the bank. According to Rivard & Thomas
(1997), ROA is the most accurate indicator of bank profitability since it is not affected
by high equity multipliers. Additionally, ROA is the best measure of the bank's
capacity to earn income from its whole asset (Nguyen et al., 2018).

Return on equity (ROE)

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 ROE is defined as a financial ratio that shows how efficiently a bank generates
profit from its shareholders’ equity. Besides, Rose & Hudgins (2012) defined ROE as
net income over the average total equity. Because it is believed that a bank's ultimate
objective is to maximize the value of its net assets, hence providing added value for
shareholders, ROE is regarded as one of the most complete measures to assess the
profitability of commercial banks (Nguyen et al., 2018). ROE reflects profitability
from the viewpoint of shareholders, while ROA measures profitability from the
standpoint of the entire efficiency of how a bank uses its total assets (San & Heng,
2013).

Net interest margin (NIM)

NIM is a financial indicator that reflects how successful a bank makes investment
choices in relation to its interest costs (Yong Tan, 2014). The interest expense is the
amount of interest payment that the bank pays for its liabilities (saving accounts and
other accounts). Banks collect deposits, use the money to pay depositors a lower
interest rate, and then lend to borrowers at a higher interest rate. Besides, NIM has
been widely used in several researches to measure bank profitability, such as studies of
Heffernan & Fu (2008), Kosmidou et al. (2005), and Hassan & Bashir (2005). A
positive value indicates that a bank’s investment decisions are optimal because interest
income generated through loans is more than interest expenses.

1.3. Empirical studies on green credit and bank profitability:

Due to the fatal influence of environmental issues and the importance of
sustainable development, the terms like “green economy”, “green banking”, “green
finance”, or “green credit” have received extensive attention from individuals,
businesses, and governments all over the world. According to Gao & Guo (2022),
several nations are implementing green credit policies to achieve the “double carbon
goal”, which has become a vital factor affecting operations and long-term growth of
commercial banks. Therefore, recently, there has been many studies about green credit
around the world, especially its impact on bank performance and bank profitability as
well.

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 In the developed economies, financial institutions in the US, European, and
Middle Eastern have been at the forefront in adopting environmental, social, and
governance (ESG) principles as a part of their business models. These include more
emphasis on green bond issuance, sustainable project finance, green banking, and
green credit. An emerging literature, therefore, has examined the impact of green
finance, green banking, and green credit in these economies. Backman et al. (2024)
examined empirically 69 banks in 15 European countries for the period 2018 - 2022
using a panel data method to analyze the effect of sustainable lending on bank
profitability. The finding indicates that sustainable lending, or the decision by financial
institutions to extend credit to individuals and firms considering environmental and
social criteria, does not have any statistically significant effect on bank profitability.
On the other hand, Al Frijat, Al-Msiedeen, and Elamer (2025) employed regression
models to analyze data from 14 Jordanian banks for the period 2016 to 2023. Their
study identified a positive and significant relationship between green credit policies
and financial performance, where banks with stronger green credit policies have
improved financial performance. Besides, Tóth et al. (2021) applied panel regression
methods to a sample of 243 lending institutions listed from 2002 to 2018 on the stock
exchange in the European Union (EU) and the European Free Trade Association
(EFTA) to examine the relationship between financial stability and ESG performance.
The results revealed that while ESG performance had a significant negative impact on
non-performing loans, it had a positive effect on bank profitability. These findings
highlight the importance of ESG integration for financial institutions, referencing
encouraging benefits for banks, investors, and regulators.

Several Asian countries have also started to implement green credit programs
for corporate customers. Thus, there are many studies about green credit conducted by
many authors. Especially in China - one of the countries that concentrates on green
banking and green credit, many studies about the impact of green credit on commercial
banks’ financial performance have been conducted. For instance, Gao & Guo (2022)
conducted a study using the DID (Difference-in-Difference) model to analyze data,
which has been collected from 62 Chinese commercial banks from 2013 to 2020 in the
high environmental responsibility group. The results proved that the green credit has a

10
complex impact on the financial performance of different commercial banks. Xiaoyi
Chang (2021) has taken the data of 20 Chinese commercial banks from 2009 to 2018
as samples, utilized the random effects model for regression analysis, and the
empirical results showed that green credit has a negative impact on the profitability of
commercial banks. According to Song et al. (2019), the author built a dynamic panel
system based on the Generalized Method of Moments (GMM) method to test seven
foreign banks' data and twelve listed Chinese commercial banks' data between the first
quarter of 2008 and 2015. The results showed that green credit improved the
profitability of foreign banks but exerted a negative effect on Chinese commercial
banks. In the same pattern, Zhao Ranning (2022) also proved that green credit has a
negative effect on Chinese commercial banks’ profitability in general by using the
panel data of 36 domestic listed commercial banks from 2011 to 2020. Furthermore,
Renhong Wu et al. (2024) conducted empirical analysis and research using Stata
software, and they employed panel data of 10 listed Chinese commercial banks from
2012 to 2020. Based on the findings, the establishment of a green credit company is
probably to decrease the bank's profitability in the short run. Besides, as the business
of green credit increases, it represses "two highs and one surplus" enterprises and also
decreases their loan size remarkably, which affects the profit of commercial banks. In
contrast, Yonghui Lian et al. (2022) used a fixed effect model and unbalanced panel
data of 34 Chinese commercial banks from 2007-2018 to study the impact of green
credit on financial performance. Increased green development inspires an increased
economic yield from green credit provided by banks, increased green economic
growth and greater support by environmental policy. Governments equate to an
increased positive contribution of green credit to banks' financial performance. The
findings showed that green credit enhances the profitability of commercial banks, and
that such enhancement is mainly derived from the positive impact of green credit on
the rate of return on interest-bearing assets of banks. Sutrisno, Agus and Abdul (2024)
conducted a study to examine the impact of green credit on Indonesia bank
profitability and bank stability. The authors used information from 35 banks disbursed
green credits starting from 2019 to 2022. The results of this study revealed that green
credits have a positive effect on bank profit, but they have no impact on bank stability.

11
Sutrisno & Ahmad (2024) examined the population with 46 banks from 2019 to 2022
committed to green credit and registered on the Indonesian Stock Exchange (IDX).
After conducting the fixed effect model, the results showed that green credit has a
significant positive impact on bank profitability in Indonesia, whereas green credit in
Indonesia is not affected by bank capital adequacy, bank operational efficiency, bank
liquidity, bank credit risk, and bank size. Yasmin (2021) employs empirical evidence
from 20 listed Bangladeshi commercial banks on the Dhaka Stock Exchange's audited
annual reports between 2016 and 2018. Employing regression analysis, independent
sample T-test, and simple descriptive statistics, the research validated that banks that
are more profitable and stable also offer more green loans. Conversely, banks offering
more green credit have been proven to be more stable and profitable.

It can be seen that sustainable development is becoming an inevitable trend and

urgent requirement of countries, including Vietnam. Vietnam has carried out numerous
significant green credit studies. In particular, Nguyen Van Hoa et al. (2022) used
secondary data from various sources, including the World Bank Indicators (WDI), the
State Bank of Vietnam, and the General Statistics Office of Vietnam, covering the
period from 1986 to 2020. The research utilized the Augmented Dickey-Fuller (ADF)
test for investigating relationships among the variables. The results indicate that green
credit, green investment, and financial inclusion all have a positive association with
Vietnam's sustainable economic development. The research additionally emphasizes
that green credit increases the volume of financial resources for both non-profit-
oriented and profit-oriented entities to reduce the environmental footprints of their
assets and operations, thereby facilitating sustainable economic development. Khanh
Duy Pham et al. (2025) examined the effect of green credit on the relationship between
some major financial indicators and Vietnamese banks' performance. Based on panel
data collected from the consolidated financial statements and annual reports of 30
chosen banks out of 49 banks in Vietnam during 2015-2022, the research employed a
fixed-effect model to check the effect of green credit on bank performance. The
evidence suggests that green credit has its influence on bank performance through the
moderation of the relationship among the loans-to-deposit ratio and return on assets
(ROA) and return on equity (ROE). Nevertheless, the study did not observe the

12
moderating effect of green credit on the relationship between bank size, capital
adequacy, and performance. The evidence indicates that the effect of green credit
policies can assist banks in reducing liquidity risks and improving financial stability.
Furthermore, Nguyen Minh Phuong et al. (2024) applied the Difference-in-Difference
(DID) approach in studying the green credit policy's effectiveness towards the
performance of 49 commercial banks in Vietnam using panel data from annual reports
and financial statements from 2012 to 2022. The research determined that there was no
empirical ground for the assumption that the green credit policy results in increased
profitability of commercial banks. Nevertheless, the implementation of green credit
policies is linked with a downward trend in the proportion of banks' non-performing
loans (NPL) ratio. Furthermore, the authors informed that this reduction is a strong
incentive for the State Bank of Vietnam to further promote green credit policies, and a
foundation for developing solutions to address the existing problems related to green
credit policy in Vietnam.

Table 1. Summary of empirical studies

No Authors & Countries Period of Research Key results of study
year of
under time under sample
study
study study
1 Backman 15 2018 - 2022 69 financial Sustainable lending or
European
et al. institutions credit considering
countries
(2024) (Germany, environmental and
Denmark, social criteria do not
Spain, have effect on bank
Finland, ...) profitability.
2 Al Frijat, Jordanian 2016 - 2023 14 banks Green credit policies
Al- and financial
Msiedeen, performance are
and Elamer strongly and positively
(2025) related.
3 Tóth et al. Europe 2002 - 2018 243 lending ESG performance has
(2021) institutions a positive effect on
13
 bank profitability.
4 Gao & Guo China 2013 - 2020 62 Green credit has a
(2022) commercial complex impact on the
banks banks’ financial
performance.
5 Xiaoyi China 2009 - 2018 20 Green credit has a
Chang commercial negative impact on the
(2021) banks profitability of
commercial banks.
6 Song et al. China and 2008 - 2015 12 Chinese While green credit had
(2019) other banks and 7 a positive impact on
countries international international banks’
(Spain, banks profitability, it had a
Brazil, negative influence on
Sweden,...) the profitability of
Chinese commercial
banks.
7 Zhao China 2011 - 2020 36 domestic Green financing
Ranning listed negatively impacts the
(2022) commercial profitability of Chinese
banks commercial banks.
8 Renhong China 2012 - 2020 10 Chinese In a short run,
Wu et al. listed applying green credit
(2024) commercial policy decreases bank
banks profitability.
9 Yonghui China 2007 - 2018 34 Chinese Green credit enhances
Lian et al. commercial the profitability of
(2022) banks commercial banks.
And that such
enhancement is mainly
derived from the

14
 positive impact
ofgreen credit on the
rate of return on
interest-bearing assets
of banks.
10 Sutrisno, Indonesia 2019 - 2022 35 banks Green credits increase
Agus and bank profits but have
Abdul no effect on bank
(2024) stability.
11 Sutrisno & Indonesia 2019 - 2022 46 banks Green credit
Ahmad considerably increases
(2024) Indonesian banks'
profitability.
12 Yasmin Bangladesh 2016 - 2018 20 It turns out that banks
(2021) commercial that issue more green
banks loans are more stable
and profitable.
13 Nguyen Vietnam 1986 - 2020 Green credit increases
Van Hoa et the volume of financial
al. (2022) resources for both non-
profit-oriented and
profit-oriented entities.
14 Khanh Duy Vietnam 2015 - 2022 49 banks Green credit has its
Pham et al. influence on bank
(2025) performance through
the moderation of the
relationship among the
loans-to-deposit ratio
and return on assets.
(ROA) and return on
equity (ROE)

15
 15 Nguyen Vietnam 2012 - 2022 49 banks There was no
Minh empirical ground for
Phuong et the assumption that the
al. (2024) green credit policy
results in increased
profitability of
commercial banks.

1.4. Hypothesis development:

Bank profitability is reflected by their financial performance, and they can
improve their profit by creating new revenue resources, increasing investments, or
declining credit risk. Commercial banks which implement green credit can interact
with stakeholders, businesses, and individuals, which helps banks attract investments,
depositors to create a foundation for business expansion and profit increase.

Firstly, green credit implementation can increase bank profitability thanks to the
creation of new revenue resources. Green credit business chain primarily includes
business support, qualification verification, research and development, fund
investment, and post-loan management process. Green credit development may thus
attract the related intermediary business (e.g., settlement and delivery, guarantee,
custody, and consultancy) and hence emerges as a new revenue source of commercial
banks' middle businesses (Song et al., 2019). Thanks to high awareness of enterprises
and individuals about a wide variety of environmental problems, including air
pollution, climate change, soil erosion, and water scarcity, the market witnesses the
significant increase in the demand for “eco-friendly” products and services, involving
green loans and credit (Jin, 2018). Gao and Guo (2022) investigated that commercial
banks’ performance and the preservation of the environment can result in a win-win
scenario. The findings of this study demonstrated that green credit contributes to the
creation of commercial banks’ revenue resources by raising their non-interest income
and lowering their non-performing loan ratios. Additionally, green credit products can
be made available to capitalize on this expanding market and create new streams of

16
income. Thus, offering green credit products may be viewed as a means for banks to
develop a more varied loan portfolio and may be an opportunity for financial
institutions to gain market share (Jin, 2018).

Secondly, green credit can help banks reduce non-performing loan ratio,
therefore, increasing their profitability. By incorporating such initiatives into their
development strategy, commercial banks can lower their non-market credit risk
(Xiaoling Song, 2019). Because green credit businesses have better asset quality and a
lower ratio of non-performing loans, Scholten & Dam (2007) defined green credit as
lowering banks' credit risk. Commercial banks perform thorough due diligence before
issuing green loans, examining borrowers to assess their potential risks to the
environment and society. Thus, stringent credit management can improve commercial
banks' business perspective by reducing the default risk and keeping the non-
performing loan ratio low (Worsdorfer, 2015). Green credit projects are associated
with less risk as compared to conventional projects, and they can significantly help
reduce the rise in non-performing loan ratios while enhancing expected profits as well.
Thus, the promotion of green credit by commercial banks is expected to enhance their
risk tolerance, hence working towards enhancing net profit and non-interest income
(Sun et al., 2017). Banks need to conduct stricter screening regarding green loans.
Implementing policies effectively can result from good risk management (Islam et al.,
2014). According to Ho et al. (2019), banks with strong risk management also have a
high quantity of green credit.

Thirdly, cost is one of the critical factors affecting the profitability of

commercial banks, and the introduction of green credit policies may have a significant
impact on their costs. Institutional stakeholder theory argues that social behaviors that
affect stakeholder relations can reduce transaction and agency costs. Green credit in
this regard is a manifestation of the social responsibility of commercial banks, which
enhances transparency and lowers information asymmetry with stakeholders. In being
aligned with environmental activities, banks not only earn respect from society,
thereby lowering public relations costs, but also become attractive as employers.
Employees, if offered the choice, will prefer to work for socially responsible

17
organizations, which in the long term will reduce recruitment and retention expenses.
Therefore, the introduction of green credit policies can reduce commercial banks' total
operating expense, which in turn can enhance their profitability.

Therefore, this research proposes the following hypothesis:

Hypothesis H1: Green credit implementation increases the profitability of

commercial banks.

18
 CHAPTER 2. RESEARCH METHODOLOGY
2.1. Data sources:
Currently, Vietnam has 49 banks, including different types of banks, such as:
the State Bank, joint stock commercial banks, joint venture banks, 100% foreign
owned banks and foreign banks branches in Vietnam. In this study, we utilize available
data from 28 commercial banks’ audited banks' financial statements, including annual
reports, balance sheets, and income statements, are the source of financial data utilized
in this study between 2015 and 2024. While macro data are gathered from the World
Bank and the IMF, green credit implementation data are manually gathered from
various sources, including bank announcements and published articles.

This research eliminated the sample of incomplete information and missing data
before analyzing the data. The data comprises 280 annual observations from the period
2015 until 2024.

2.2. The variables:

2.2.1. Dependent variable:
Several researchers used numerous indicators to reflect bank profitability such
as Return on assets (ROA), Return on equity (ROE), Net interest margin (NIM), or
Profit margin (BTP/TA). For instance, San & Heng (2013) employed three ratios—
ROA, ROE, and NIM—that reflect profitability in analyzing the determinants of
Malaysian commercial banks' profitability. Bashir (2003) used three measures of
banks’ performance, especially banks’ profitability: the profit margin (BTP/TA), return
on assets (ROA), and return on equity (ROE). However, most income of commercial
banks is from interest rate spreads between deposits and loans, therefore, following
existing research such as Do et al. (2021), Pervin et al. (2015), Islam (2019), San &
Heng (2013), this study uses ROA as an explained variable to reflect bank profitability.

2.2.2. Independent variable:

This research adopts the independent variables utilized by previous studies,
such as Nguyen Minh Phuong et al. (2024), Gao & Guo (2022), Sumei Luo et al.
(2021), Zhou et al. (2021). TREAT and POST as dummy variables representing

19
commercial banks' green loans. This double difference variable was obtained by
multiplying the bank classification and period variables.

2.2.3. Control variables:

This research investigates the determinants of commercial banks that have been
shown by existing studies to affect bank profitability, including:

Total asset (SIZE) is the basis of the commercial bank economy and directly
impacts total profit.

Non-performing loan (NPL) ratio is estimated by dividing the non-performing

loan balance by total loan portfolio. A high ratio reflects low asset quality of banks,
which negatively affects banks’ sustainable profitability.

Capital adequacy ratio (CAR) is calculated as the ratio of total capital to risk-
weighted assets. A very high CAR indicates that banks are not utilizing all their capital
to the maximum in operations and expansion, which, in the long run, will adversely
affect their profitability.

Loan-to-deposit ratio (LDR) is estimated by dividing banks’ total loans by

their total deposits.

GDP growth rate: The capital demands of people and organizations in the
economy have a big impact on the bank's performance. The need for loans rises with
economic expansion, putting pressure on financial institutions to extend credit (Samad,
2015). According to Nguyen et al. (2018), banks use this to their advantage as they
take advantage of the expanding economy and turn a profit.

Table 2. Variable name and definition

Measure Variable definition
Explained variable ROA Return on total assets
Explanatory variable TREAT A dummy variable, where TREAT = 1
(treatment group), otherwise TREAT = 0
(control group)
POST Time dummy variable, POST = 1 (after
2018), otherwise POST = 0
Control variable SIZE The natural logarithm of total assets

20
 NPL Non-performing loan ratio
CAR Capital adequacy ratio
LDR Loan-to-deposit ratio (LDR)
GDP Gross Domestic Product

2.3. Research method:

This research follows a quantitative methodology, employing panel data
regression analysis to examine the influence of the implementation of green credit on
bank profitability. It utilizes the Difference-in-Differences (DID) approach, a policy
evaluation strategy that has gained traction in several fields (Athey & Imbens, 2006),
and has been successfully implemented in previous studies. For example, Gao and Guo
(2022) used the DID approach to examine the impact of green credit policies
implemented in 2016 on the performance of 62 Chinese commercial banks that were
listed. Besides, Wu et al. (2022) employed the Difference-in-Differences (DID)
method to investigate the impact of green credit utilization on external financing,
economic development, and energy consumption in Chinese manufacturing firms from
2003 to 2016.

In 2018, the State Bank of Vietnam (SBV) released Decision No. 1604/QD-
NHNN on 7 August 2018, approving the Green Banking Development Scheme, which
directed commercial banks to place special focus on lending for green development
and environmentally sustainable projects. Furthermore, Circular No. 17/2022/TT-
NHNN, dated December 23, 2022, provided detailed instructions on how to manage
environmental risks in credit operations, promoting the development of green credit
appraisal procedures by commercial banks and the implementation of ESG
(environmental, social, governance) criteria. Therefore, this study takes 2018 as the
year of turning point of analysis, categorizing banks that launched green credit
programs from 2018 and onwards as the treatment group and those without green
credit from 2015 to 2024 as the control group. The research investigates whether the
launch of green credit results in profitability differences between these two groups of
banks.

21
 2.4. Research model:
This study constructs the following Difference-in-Difference (DID) model:

ROAit = β1TREAT ∗ POST + ∑βkXkit + λi + YEARt + εit (1)

Where ROAit is the profitability of bank i at time t; TREAT*POST is the

interaction term capturing the DID model, including TREAT, which is the dummy
variable (1 for treatment group, 0 for control group); POST: the time dummy variable
(1 after 2015, 0 otherwise); Xkit is the control variables; λi and YEARt are the
individual and time effects; β1 is is the metric we use to determine whether or not
green credit implementation has a positive impact on bank profitability. If β1 is
significant and greater than 0, we can conclude that the green credit implementation
enhances bank profitability.

22
 CHAPTER 3. RESULTS
3.1. Descriptive statistics of data:
Table 3 shows an overview of data collected from 28 banks with annual data
from 2015 - 2024 with 280 observations. The descriptive statistics of main variables
mentioned in this study include number of observations, mean, standard deviation, min
and max values.

Table 3. Full sample descriptive statistics

Obs Mean SD Min Max

ROA 280 1.23943 0.9764865 -0.38 5.23

SIZE 280 12.24493 1.172398 9.78407 14.83103

NPL 280 1.685464 0.8052016 0.13 6.68

CAR 280 12.33314 2.965493 8.35 24.53

LDR 280 75.72592 12.2509 34.35624 104.6058

GDP 280 5.953 1.772745 2.56 8.12

Source: Summary of results from Stata software

For ROA - the dependent variable, the results represent that ROA of
commercial banks from 2015 to 2024 has an average value of 1.23943 with a standard
deviation of 0.9774865. In which, the lowest value of ROA is -0.38 of Vietnam
Thuong Tin Commercial Joint Stock Bank (VBB) in 2015 and the highest one is 5.23
of Hongkong-Shanghai Bank Vietnam (HSBC) in 2023. This is due to negative net
profit of VBB in 2015, besides, with weak management and limited competitiveness,
smaller banks struggled to mobilize funds, causing an increase in bad debt. Therefore,
these banks including VBB witnessed poor financial performance, with some reported
significant losses in 2015.

For control variables, the SIZE of commercial banks has an average value of
12.24493. The SIZE is shown as the natural logarithms of total assets. The smallest
value is 9.78407 of Saigon Joint Stock Commercial Bank for Industry and Trade

23
(SGB) in 2015 and the largest one is 14.83103 of Vietnam Joint Stock Commercial
Bank for Investment and Development (BIDV) in 2024. The result reveals an average
value of NPL is 1.685464. The lowest value is 0.13 of Hongkong-Shanghai Bank
Vietnam (HSBC) in 2021 and the highest is 6.68 of Saigon Thuong Tin Commercial
Joint Stock Bank (STB) in 2016. A high non-performing loan ratio indicates
deficiencies of STB in credit management and raises a warning about the possibility of
future losses. The average capital adequacy ratio (CAR) for commercial banks in this
study is 12.33314, which is higher than the minimum requirement of 8% set by Basel
II and the State Bank of Vietnam (Circular 41/2016/TT-NHNN). The loan-to-deposit
ratio (LDR) has an average value of 75.72592, which fulfills the limit set by the State
Bank of Vietnam, typically recommended to be below 85% - 90% to ensure banks’
liquidity.

Lastly, for the macro variable, GDP growth rate has a mean value of 5.953 with
standard deviation of 1.772745 in the period 2015 to 2024. Notably, the highest rate is
8.12 in 2022 and the lowest is 2.56 in 2021. This is primarily because of the severe
effect of the Covid-19 pandemic, causing economic practices disruption.

Table 4. Descriptive statistics by treatment and control group

CONTROL TREATMENT t-test

Obs Mean Obs Mean

ROA 120 1.237679 160 1.240744 -0.0259

SIZE 120 11.57084 160 12.7505 -9.5964

NPL 120 1.652833 160 1.709938 -0.5866

CAR 120 13.3585 160 11.56413 5.2430

LDR 120 73.06633 160 77.72062 -3.1976

GDP 120 5.953 160 5.953 0.0000

Source: Summary of results from Stata software

24
 Descriptive statistics for treatment group (banks with green credit since 2018)
and control group (banks without green credit during 2015 - 2024) is presented in
Table 4 to assess whether there is any difference in ROA between two mentioned
groups or not. There are 160 observations in the treatment group with a mean ROA
and SIZE at 1.240744 and 12.7505, in turn. The total observations of the control group
are 120 with a mean ROA and SIZE at 1.237679 and 11.57084, respectively. There is a
difference of mean ROA between the group with green credit implementation and one
without green credit implementation. In addition, the treatment group has a ROA value
higher than the control group. Besides, there is also a difference in the size of these
two groups, in which the treatment group is larger than the control one.

Table 5. Correlation matrix

ROA SIZE NPL CAR LDR GDP

ROA 1.0000

SIZE 0.2291 1.0000

NPL -0.2452 -0.1955 1.0000

CAR 0.1703 -0.4281 0.1074 1.0000

LDR -0.0166 0.4084 0.1368 -0.1907 1.0000

GDP -0.0269 -0.0572 0.0610 0.1191 0.0074 1.0000

Source: Summary of results from Stata software

Based on results listed in Table 5, all the correlation coefficients among variables in
regression models are below 0.8, and that is to conclude that multicollinearity is
unlikely to occur. Therefore, it can be concluded that there is no multicollinearity
phenomenon in the research model.

3.2. Empirical results:

3.2.1. Main result:
This research utilizes DID model and mainly focuses on the profitability impact
of green banks compared to other banks before and after the green credit policy

25
implementation, namely, the coefficients of the interaction term (TREAT*POST) in
the DID model.

Table 6. Baseline results (using 2018 as dividing point)

(1) (2) (3)

ROA ROA ROA

TREATxPOST 0.5614* 0.5255** 0.5255**

(1.92) (2.42) (2.42)

SIZE 0.7033* 0.7033*

(1.73) (1.73)

NPL -0.0746 -0.0746

(-1.42) (-1.42)

CAR -0.0733** -0.0733**

(-2.50) (-2.50)

LDR 0.0202*** 0.0202***

(3.01) (3.01)

GDP -0.1136

(-1.61)

_cons 0.7586*** -7.5851 -6.8263

(5.82) (-1.60) (-1.52)

N 280 280 280

Parallel trend
F(1, 27) = 0.19 F(1, 27) = 0.01 F(1, 27) = 0.01
test Prob > F = 0.6647 Prob > F = 0.9402 Prob > F = 0.9402

Granger F(2, 27) = 0.76 F(2, 27) = 1.12 F(2, 27) = 1.12
test Prob > F = 0.4767 Prob > F = 0.3415 Prob > F = 0.3415

26
Time fixed effect YES YES YES

Source: Summary of results from Stata software

Note: * represents p<0.1, ** represents p<0.05 and *** represents p<0.01. Year
dummy variables are not shown.

The table 6 shows the effect of green credit implementation on bank

profitability for the full sample. Column (1) included only the explanatory variables
and their interaction. Column (2) included explanatory variables and bank-specific
control variables (SIZE, NPL, CAR, LDR). Column (3) included the explanatory
variables, the bank-specific control variables and the macro variable GDP.

The result reports that the coefficient of the cross-term TREAT*POST was
positive and greater than 0. This concludes that banks with green credit policy have a
higher ROA 0.5614% and 0.5255% than banks without green credit policy. The slight
decrease in the TREAT*POST from column (1) to column (2) and (3) is due to bank-
specific characteristics, which mediate the impact of green credit implementation on
ROA, but the impact remains robust. This conclusion indicates that green credit policy
implementation enables commercial banks in the treatment group to have an obvious
profitability growth, so green credit implementation increased bank profitability.

The research conclusion verifies Hypothesis 1 that green credit implementation

increases the profitability of Vietnamese commercial banks, which aligns with the
reports of previous research. For example, Yuan B (2024) concluded that green credit
implementation of commercial banks not only promotes sustainable development but
also positively affects their operating performance, especially bank profitability and
risk management capabilities through green credit business enhanced social reputation,
and indirectly improved banks’ market competitiveness. According to Abdul Hakim et
al. (2024), although the results of the study document showed that green credit has no
impact on bank stability, green credit has a positive influence on bank profits.
Therefore, this study suggested that banks should diversify the loans in many sectors,
including conventional sectors and new sectors related to environment and sustainable
development. Gao & Guo (2022) found that non-interest income and the non-

27
performing loan ratio are the mediating mechanisms by which the green credit
business improves commercial banks’ profitability. Moreover, thanks to the increase of
non-interest income and the decrease of non-performing loans, green credit
implementation enhances bank profitability.

The results of the control variables are described as follows. Asset size and
loan-to-deposit ratio have a positive correlation with the bank profitability with. This
indicates that larger banks with economic scale and banks with higher loan-to-deposit
ratio and increased interest income have the tendency to have higher ROA. In contrast,
the non-performing loan ratio has a negative correlation with the profit level of
commercial banks, indicating that the increased non-performing loan ratio causes the
decrease of bank profitability, thought this effect is not statistically significant. The
capital adequacy ratio did not effectively enhance commercial banks’ profit,
suggesting that a greater ratio is not always better. For the macro-economic variable,
GDP growth rate does not have a significant effect on the profit level of commercial
banks.

3.2.2. Parallel Trend Test:

In this study, the DID method is used to evaluate the impact of green credit
implementation on the profitability of commercial banks. Therefore, to ensure the
validity of this method, a parallel trend test is conducted based on the premise that the
treatment group and control group have similar trends before the policy is
implemented. We plot the profitability of the treatment group and control group over
the time and conduct a parallel trend test to ensure this assumption.

Figure 1. Parallel trend

28
 From Figure 1, both the treatment group and control group experienced similar
trends in ROA. In the 2015 - 2017 period, the profitability levels of both groups
followed very close to each other, with an overall upward trend. The graph seems to
show that parallel trend assumption is satisfied. There is an obvious difference in the
profitability level of two groups when implementing green credit policy in 2018. The
treatment group performed better with regard to ROA, while the control group
underwent fluctuant drop. After 2018, the difference between two groups became
increasingly evident, with the treatment group maintaining higher levels of
profitability. Whereas both groups experienced some fluctuations, overall, the
performance of the treatment group is much higher than the one of the control group.

To examine this hypothesis, a parallel trend test is conducted by adding

variables capturing time trends for two groups before and after the treatment to the
baseline model. For linear trend changes before treatment, the model of linear trends
predicts a coefficient. Parallel trends of linear pretreatment are parallel when the
coefficient is 0. In the absence of an equivalent trend prior to the treatment, it would be
difficult to recognize differences in the use of green credit by treated and untreated
institutions (TREAT*POST). In all specifications of the model, the parallel trend test,
which is shown at the table 6, reports p-values greater than 5% and F-statistics are not

29
significant at conventional levels. The results confirm the parallel-trends hypothesis
and indicate that the profitability of both treated and untreated banks had a consistent
trend before the green credit policy was implemented.

In addition, we want to check that neither the control group nor the treatment
group changed their behavior prior to the treatment. The varying trajectories can
indicate a potential anticipatory effect of the treatment, which implies banks might
have begun to implement the policy prior to 2018. Thus, verification that there was no
treatment effect prior to the treatment is an alternative way of verifying the parallel-
trends assumption. We check this hypothesis with a Granger-type causation test by
adding dummies to Equation (1) that predict future treatment status for every time
interval preceding treatment. There are no lead effects if the joint test of the
coefficients on these dummies against 0 (null hypothesis) is accepted.

The outcomes from the Granger test, as presented in table 6, indicate that the
null hypothesis of no anticipatory effects prior to treatment cannot be rejected because
the p-values of all F-statistics exceed 0.1. Hence, it is reasonable to conclude that the
results of the Granger test, as well as the parallel trend test and profitability plot,
indicate no cause for concern regarding the assessment of the effects of green credit
implementation on treatment and control banks.

The discussion below clarifies the differences in bank profitability following

the policy implementation. Banks are able to generate various sources of revenue
following the addition of green loan products. This, therefore, enhances the
profitability of banks. According to Gao & Guo (2022), green credit can increase
banks' non-interest income streams and therefore their profitability. Banks can take
advantage of the expanding demand for green financing products rapidly by adopting
practices of green credit. With this, companies can improve their financial returns,
expand their product portfolio, and improve their non-interest income and green
bonds. Furthermore, banks have the ability to pioneer developments in green finance
through effective proactive implementation of environmental credit policies, hence
enabling the complex frameworks for differing products and services. Besides, banks
can enlarge their lending books through the provision of sustainable loans (Song et al.,

30
2019). In the long run, such diversification may enhance risk management practices
and even reduce overall risks, thus leading to better profitability. Banks participating in
green finance may also attract socially responsible investors. This heightened investor
interest may translate into greater capital inflows and reduced borrowing costs,
ultimately contributing to enhancing bank profitability. As a result, commercial banks
are able to improve their financial performance by strengthening their green credit
portfolios, causing a substantial enhancement of both their net profit as well as their
non-interest income.

3.2.3. Robustness test:

In order to confirm the robustness of our model, we conducted two more
models to examine if the outcomes differed from the baseline in table 6. In column (1),
we changed the sample period to 2015-2020, a possible alteration in the dividing point
for testing the stability of the treatment effect over time. In Column (2), we employed
return on equity (ROE) as a proxy for bank profitability rather than return on assets
(ROA). These alternative specifications allowed us to observe how changes in key
variables and model specifications would affect our results.

Table 7. Robustness test

(1) (2)

ROA2~2020 ROE2~2020

TREATxPOST 0.5764** 5.0809*

(2.68) (1.79)

SIZE 1.2979* 10.3317**

(1.84) (2.32)

NPL -0.0971* -1.4157**

(-1.75) (-2.51)

CAR -0.0885** -1.0600***

31
 (-2.50) (-2.99)

LDR 0.0234** 0.1442

(2.69) (1.69)

GDP 0.0485 0.6668**

(1.32) (2.21)

_cons -14.7484* -106.8459*

(-1.77) (-1.94)

N 168 168

Source: Summary of results from Stata software

Note: * represents p<0.1, ** represents p<0.05 and *** represents p<0.01. Year
dummy variables are not shown.

Results in Table 7 offer additional evidence on the robustness of our results. In

Column (1), with a modification in the sample period to 2015-2020 to permit a
possible adjustment in the cutoff point, the TREAT*POST coefficient is still positive
and significant, and even higher than the benchmark results in Table 6, which is at
0.5764 compared to the baseline coefficient of 0.5255. In Column (2), in which the
alternate bank profitability measure is return on equity (ROE), the coefficient is still
significant at the 10% level at 5.0809. This validates that the findings are not period or
profitability measure sensitive. This also serves as proof that the results are robust.
Thus, it can be concluded that whether the dividing point is changed to a particular
time interval or the profitability metric is changed, the results are robust. This also
corroborates the fact that the disparity in bank profitability between the treatment and
control groups is indeed due to the introduction of the green credit policy.

32
 CHAPTER 4. DISCUSSION
4.1. Conclusion and implications:
This paper investigates the impact of green credit policy on the profitability of
commercial banks in Vietnam in the period from 2015 to 2024. Following the Decision
1604/QD-NHNN 2018 approving the Project on developing green banking in Vietnam
by the Governor of the State Bank of Vietnam and the Decision 986/QD-TTg 2018
approving the Banking Industry Development Strategy to 2025, with a vision to 2030,
including the orientation of developing green credit - green banking, this study
assessed 16 banks that disclose green credit implementation and 12 other banks that do
not disclose green credit policy. The Differences-in-Differences (DID) is used to
differentiate the financial performance of commercial banks when applying green
credit policy, thus examining the impact of green credit on the bank profitability.

The study reveals a significant finding. Complying with the Decision 1604/QD-
NHNN and Decision 986/QD-TTg, implementing green credit has a positive impact on
ROA of banks, supporting the hypothesis that green credit increases bank profitability.
This provides great encouragement to the Vietnamese Government, Vietnamese banks,
and enterprises in applying and using green credit, as follows:

(1) The Vietnamese government needs to enhance the integration of the

information disclosure system and the relevant criteria to ensure consistency
and stability of green credit policy. By improving the quality of environmental
information disclosed and promoting the sharing of environmental information
between banking departments, the stability of the green credit policy can be
ensured and information asymmetry among financial institutions can be
mitigated. In order to better facilitate the transparency and accountability of the
enforcement of this policy, it is suggested that there be a systemic mandatory
disclosure mechanism for green credit business by banks, instead of voluntary
social responsibility reports. In addition, the government can complement
financial investment in green projects and offer tax rebates to alleviate the
concerns of banks over the loan repayment period of projects related to
environment or energy-saving. Furthermore, it is essential for the government
33
 to establish legislation that regulates interest rates associated with financing
green credit programs, thereby providing a variety of choices that enhance
market accessibility for both providers and applicants for funds. This approach
will facilitate the development of a more sustainable and competitive financial
landscape while simultaneously motivating a greater number of enterprises to
adopt environmentally friendly practices. These efforts can help achieve better
allocation of resources and enable financial institutions to further expand their
lending programs.
(2) Commercial banks in Vietnam should follow the framework of applying green
growth strategy to emphasize the importance of green credit policy in
improving bank profitability and contributing to a better economy. Priority
should be placed on developing specific policies related to green targets,
studying, implementing, and promoting green products and services, as well as
green credit, to mitigate negative impacts on the environment. Meanwhile,
banks should provide preferential loan policy, including preferential interest
rates and extended loan terms, to assist green production and business activities.
Banks should also continuously innovate contemporary banking products and
services to achieve quick and precise debt quality management and analysis.
Besides, commercial banks should actively pursue green international capital
via relative agencies, industries, or direct contact with financial institutions, and
non-governmental organizations for green project financing. Additionally,
providing training courses and supporting materials to customers and
employees to raise their awareness of green finance products and the
sustainability benefits of financing. To gain the trust of stakeholders, regular
reports on the environmental effects of green credit portfolios should be
provided and transparently disclose the achievement of sustainability goals. By
applying these strategies, banks can play a vital role in encouraging green
financing and aiding in the shift to a more ecologically sustainable economy.
(3) In order to capitalize the benefits of implementing green credit and support a
sustainable economy, businesses need to pursue a strategic approach to
integrating environmental activities into their operations, including carbon

34
 emissions reduction, waste reduction programs, and eco-friendly products and
services. Simultaneously, companies must systematically examine and monitor
key environmental performance indicators, such as energy consumption,
greenhouse gas emissions, resource use, and waste management efficiency, to
gauge the success of their sustainability efforts. Further, companies must be
responsible and transparent in disclosing their sustainability efforts and
achievements to stakeholders like investors, customers, and the public at large.
These disclosures help lend credibility, building trust and underscoring
commitment to environmental sustainability. By embracing these steps,
companies are not only capable of leveraging the benefits of green credit
frameworks, but also play a leading role in fostering an economy that is
sustainable with environmental responsibility and long-term stability.

4.2. Limitations:
One of the limitations of the current study is that it was carried out based on the
information collected only from the selected data from 28 commercial banks from
2015 - 2024, with the limited sample size of the study (280 observations) because of
the lack of data and financial reports of some banks, especially 100% foreign owned
banks. Secondly, comprehensive data on green credit balances are not available in this
research. As a result, this study may be unable to measure the level of green credit
implementation, thus, it can not analyze accurately the relationship between green
credit and bank profitability.

In spite of these limitations, it is believed that his study can make a significant
contribution to the existing literature on green banking. Moreover, future studies will
be able to deal with these limitations with greater availability of data. At that time, a
more complete examination of the relationship between bank profitability and green
credit balances can be conducted, providing the whole picture of the extent to which
green credit positively contributes to bank profitability. Therefore, to overcome these
limitations, further studies are needed.

35
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