The Impact of Green Financing and SME Credit on Bank Profitability: Panel Evidence from Indonesian Banks

Abstract

Sustainable finance and small business lending have become central pillars in modern banking strategy, yet their simultaneous effect on bank earnings performance remains insufficiently examined, particularly in emerging market contexts. This study investigates the influence of green financing and small-and-medium enterprise (SME) credit on the return on assets (ROA) of Indonesian commercial banks over the 2019–2024 period. Panel data were drawn from five publicly listed banks — BCA, BRI, BNI, Bank Mandiri, and Maybank Indonesia — yielding 30 firm-year observations. Multiple linear regression analysis was employed as the estimation method. The findings reveal that green financing exerts a statistically significant positive effect on bank profitability (B = 0.008, t = 2.356, sig 0.026), whereas SME credit does not demonstrate a significant influence on ROA (B = −0.001, t = −0.633, sig 0.532). The F-test confirms that both predictors jointly explain a meaningful portion of profitability variation (F = 3.581, sig 0.042), with an adjusted R² of 0.151. These results highlight the strategic importance of green financing portfolios as profitability drivers, while suggesting that the credit-risk characteristics of SME lending require additional risk-management considerations before yielding visible return improvements.