An Empirical Analysis of Green Lending Practices and Their Impact on Credit Risk Management in the Banking Sector During the Russia–Ukraine War

Abstract

This study examines the impact of green lending on credit risk management in the banking sector during the Russia–Ukraine war, with a focus on financial stability under crisis conditions. The research is motivated by the significant increase in credit risk during periods of geopolitical conflict, particularly the rise in non-performing loans (NPLs) due to economic disruption and reduced borrower solvency. Evidence from the Ukrainian banking system indicates that the share of NPLs increased to nearly 40% during the war, posing a serious threat to banking stability .The study integrates the concept of green finance into this crisis context by analysing whether green lending can act as a strategic tool to mitigate credit risk. Green loans, which finance environmentally sustainable projects, are increasingly viewed as instruments that enhance bank reputation, improve governance, and potentially reduce risk exposure . However, their effectiveness during extreme economic shocks such as war remains underexplored. The research adopts an analytical framework where green lending is considered as the independent variable, credit risk (measured through NPLs and default probability) as the dependent variable, and the Ukraine war as a moderating factor. The study relies on secondary data sources, comparative analysis, and existing empirical findings from global banking systems affected by conflict and financial instability. Additionally, global evidence suggests that credit risk has been rising across sectors due to economic uncertainty, inflation, and geopolitical tensions, further emphasizing the importance of effective risk management strategies. The findings suggest that while war significantly increases credit risk, green lending has the potential to partially offset this impact by promoting more stable and sustainable investment practices. The study concludes that integrating green finance into banking strategies can enhance resilience, improve risk management, and support long-term financial stability even in crisis environments.