Do Green Banking Practices Enhance Bank Performance? Empirical Evidence from Nepal

Abstract

This paper examines the impact of green banking activities on the financial performance of commercial banks in Nepal. With the growing attention focusing on the environmental sustainability, this green banking becomes one of strategic concept that allows banks to pursue their financial objectives, while reducing their negative impacts on environment. The methodology employed is descriptive and analytical research design where secondary data were collected from all the commercial banks in Nepal for eleven years (FY 2070/71–2080/81). Crucial explanatory variables include green finance, digital banking adoption,, corporate social responsibility (CSR) fund distribution and selected bank-specific and macro variables of non-performing assets (NPA), capital adequacy ratio (CAR), gross domestic product (GDP) and inflation. Financial performance is assessed through ROI and ROA. The study is based on descriptive analysis, Correlation analysis and Regression model. The empirical evidences indicate that Nepalese commercial banks have been making a significant effort to incorporate green banking in their operational strategies. Both GFFI and CSR fund investments have significant positive effects on financial performance. Digital adoption in banking has become a driving force behind enhanced efficiency and competitiveness. From the opposite perspective, negative relationships of NPA with CAR suggest the significance of good credit risk management. Profitability is also a function of GDP and inflation in a less significant way with respect to internal managerial and strategic variables. The paper concludes that green banking practices play a major role in improving the financial performance of commercial banks operating in Nepal. The combination of sustainable development goals along with technology and good risk management practices, leads to long-term profitability and operational efficiency. The potential contribution of this empirical framework is to inform bank management and regulatory authorities that environmentally sustainable and socially responsible behaviour in banking does not necessarily lead to financial underperformance. Facilitation of green finance, enhancement in digital banking structure development and promotion of CSR activities could be useful in harmonising sustainable goals with medium-term financial prospects for Nepalese banks.