Green banks versus non‐green banks: A financial stability comparative analysis in terms of CAMEL ratios

Abstract

This study examines green and non‐green‐banks from a financial stability point of view and specifically whether there are any discernible performance differences between the two groups. Using the supervisory ratios namely CAMEL variables, and employing panel data techniques (random effects model) and a global panel data set of 165 banks from 38 countries for the period 1999 to 2021, we adopt the Differences‐In‐Differences approach to examine whether green (“treatment” group) and non‐green (“control” group) banks exhibit differential behaviour, using the outbreak of the financial crisis (2008) as the time of intervention. Our results mainly show that green banks differ (and specifically perform better than their non‐green counterparts) only in terms of Total Capital, Tier 1 Capital, and NPLs/Reserve for Loan Losses ratios during and after the financial crisis. As for the rest of the CAMEL factors, it seems that both groups exhibit the same behaviour, especially in the post‐crisis period. Thus, green banks are not stronger in total than their non‐green counterparts in terms of financial stability. We also find that the financial crisis had either a positive or a negative effect on most of the CAMEL factors of both bank types, except for the Leverage Ratio (a capital adequacy proxy) and Operational Expenses/Operational Income ratios (a management quality proxy), which proved crisis‐insensitive.