Determinants of Green Credit Distribution: A Case Study on Green Banking In Indonesia

Abstract

Green credit has become an essential instrument in advancing Indonesia’s sustainable development agenda, yet empirical evidence on the drivers of its distribution remains limited. This study seeks to examine the determinants of green credit allocation among Indonesian banks that implement green banking practices. Employing unbalanced panel data from 34 banks over the 2018–2024 period, the analysis utilizes a Random Effect Model selected through the Chow, LM, and Hausman specification tests. The model incorporates ROA, Total Assets, CAR, CIR, NPL, and GDP as explanatory variables. The empirical results reveal that ROA and Total Assets exert a significant positive influence on green credit distribution, whereas CIR demonstrates a significant negative effect. Conversely, CAR, NPL, and GDP show no statistically significant impact. These findings underscore the predominance of internal financial conditions over macroeconomic factors in shaping banks’ green lending decisions within the Indonesian context.