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| Is the Loan Interest Rate for Green Enterprises Lower? From the Perspective of Loan Pricing Behavior of Commercial Banks |
| ZHANG Tian, LIU Yiming
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School of Economics and Trade,Shandong Management University;
School of Economics,Shandong University |
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Abstract Promoting green and low-carbon development is pivotal to achieving high-quality growth. However, green products, characterized by quasi-public good attributes, often generate investment returns below investors' expected thresholds. Reducing financing costs is therefore crucial to enhancing returns and channeling social capital into green industries. Green credit, as a vital tool and policy instrument for supporting green transformation of the economy, plays a critical role in offering preferential loan rates to green enterprises. Enhancing commercial banks' lending support for green enterprises relies not only on the impetus of green finance policies but, more critically, on the credit market's recognition of green firms, while it has received insufficient attention in the existing literature. Against the backdrop of escalating environmental regulations intensity by the Chinese government and intensifying competition in green credit among banks, do green enterprises enjoy lower loan interest rates compared to their non-green counterparts？ What role do market forces play？ Moreover, how does their influence differ from that of policy factors？
This paper examines whether green enterprises enjoy lower loan rates compared to non-green enterprises,and particular focus on the roles of environmental regulation and market competition in shaping credit terms. Furthermore, it disentangles the distinct effects of policy interventions versus market forces on banks' green lending strategies. Building on China's unique green credit market characteristics, the paper then examines heterogeneous pricing patterns across different bank types and firm sizes. Finally, the study evaluates the pricing efficiency of green loans.
Using desensitized loan-by-loan data from a province in China, covering all corporate loans issued by banks from October 2020 to December 2022. We find that green enterprises receive significantly lower loan rates than their non-green counterparts, driven primarily by stricter environmental regulations and heightened green credit competition, which enhances the creditworthiness of green enterprises and compresses banks' marginal profitability respectively. This rate advantage reflects both market-based recognition of green attributes and policy-induced incentives. Significant disparities exist across banks and enterprises: state-owned banks offer the lowest rates to green firms, while small and medium-sized green enterprises (SMEs) receive more favorable rates but face stricter collateral requirements. Additionally, banks' green loan pricing effectively reflects credit risks, hence it is efficient.
Based on the research findings, the following policy recommendations are proposed: First, it is recommended to adopt differentiated policies to incentivize commercial banks to increase financial support for green enterprises, while fully leveraging the government's guiding and mandatory role in environmental regulation. Second, banks should integrate green credit policies with their customer base and asset structure to strengthen risk management capabilities in green lending process. Meanwhile, they should actively develop green financial products to provide diversified financing solutions for green enterprises of varying sizes. Third, authorities should not only clarify the basic requirements for disclosure, which include entities, content, format, and timelines, but also harness the power of the digital economy to improve green enterprises' disclosure capacity and motivation. Additionally, inter-departmental collaboration should be enhanced by establishing platforms for sharing environmental data and strengthening cooperation with financial institutions in data connectivity, thereby improving the efficiency of green finance capital allocation.
This paper contributes to the existing literature from the following three dimensions: Firstly, the paper enriches green credit research by exploring the roles of environmental regulations and market competition in banks' green loan pricing and further examining their differential impacts compared to policy factors. It provides theoretical insights into understanding banks' green lending behavior and policy formulation. Secondly, the research expands the study of commercial banks' green loan pricing behavior by utilizing representative loan-by-loan data to analyze differentiated pricing strategies for enterprises of varying sizes. It reveals banks' pricing practices through both interest rates and collateral requirements, offering valuable implications for improving resource allocation efficiency in green credit markets. Thirdly, the paper deepens research on the effectiveness of green development policies by comparing changes in green enterprise loan rates under the influence of fiscal policies, financial policies, and their combined effects. It provides empirical support for enhancing the design and implementation of green development policies.
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Received: 10 September 2024
Published: 05 April 2025
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