UNIVERSITY OF ECONOMIC AND BUSINESSVIETNAM NATIONAL UNIVERSITY HANOI FACULTY OF BANKING AND FINANCE GRADUATION THESIS IMPACT OF ENVIRONMENTAL REGULATION ON BANK NONPERFORMING LOAN: EVIDE
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Air pollution and climate change have become urgent global issues due to rising carbon emissions According to the National Oceanic and Atmospheric Administration (NOAA, 2022), carbon dioxide levels have reached historic highs In response, many countries are implementing environmental regulations to address these challenges and enhance public awareness of the climate crisis Furthermore, over 150 nations have submitted updated Nationally Determined Contributions (NDCs) aimed at reducing emissions.
According to Katie Williamson (2018), 0 accounts for 90% of total emissions, highlighting the urgent need for action Research by Douglas et al (2021) suggests that if all commitments, including those from COP26 in Glasgow, are fully implemented, the average global temperature could be maintained below 1.8 °C by the century's end Over 150 countries are united in their goal to achieve net-zero emissions by mid-century, prompting the rise of environmental regulations and policies that address climate change and promote sustainable development These regulations aim to reduce the negative environmental effects of economic activities, facilitate the transition to a low-carbon economy, and enhance environmental sustainability One proposed solution to limit global warming is the implementation of carbon taxes, making it essential to understand their potential impact on various sectors, including the banking industry, for fostering sustainable and resilient economies.
A carbon tax is imposed on companies that emit carbon dioxide (CO2) during their operations, serving as a financial incentive to decrease the use of high-carbon fuels across the economy This tax aims to mitigate the environmental damage caused by excessive CO2 emissions Similar to carbon emissions trading, it is a key component of carbon pricing strategies designed to promote sustainability.
Research indicates that carbon taxes effectively lower greenhouse gas emissions by increasing associated costs, prompting governments to reduce fossil fuel consumption and encourage the development of eco-friendly alternatives As of 2020, over 30 countries and regions have adopted a carbon tax, with Finland leading the way in 1990, setting a tax rate of $24.39 per ton of carbon Following Finland, other Nordic countries like Sweden and Norway implemented their own carbon taxes in 1991, with Norway's tax starting at $51 per ton for petroleum, making it one of the most stringent in the world.
Environmental regulations significantly affect businesses' financial performance and creditworthiness by imposing additional costs and necessitating changes in production processes to comply with standards These regulations can hinder businesses' ability to meet debt obligations, potentially increasing nonperforming loans (NPLs) in the banking sector The implementation of stringent carbon taxes particularly impacts carbon-intensive industries, creating financial shocks that may lead to bad debts As observed, countries that introduced carbon taxes experienced a rise in NPLs, highlighting the correlation between environmental regulations and financial distress in businesses.
Recognizing the effects of environmental regulations on non-performing loans (NPLs) is essential for policymakers, regulators, and banking institutions This understanding sheds light on the risks and challenges that banks encounter when dealing with industries affected by strict environmental rules, as well as when providing loans to sectors sensitive to environmental issues.
10 contributes to the broader understanding of the financial stability and resilience of the banking sector in the context of evolving environmental and sustainability considerations.
The banking sector is crucial for financing economic activities, particularly in carbon-intensive industries As nations work towards greener economies, the implementation of carbon taxes significantly affects businesses in these sectors, potentially jeopardizing their financial health and loan servicing capabilities Understanding the link between carbon taxes and non-performing loans is vital for assessing the financial risks and opportunities related to climate change mitigation policies.
Non-performing loans present a major challenge to the stability of global banking systems, making it crucial for banks and policymakers to understand their contributing factors and associated risks This research investigates the influence of carbon taxes on non-performing loans, aiming to enhance the existing literature on banking risk management and environmental finance.
This research investigates the influence of environmental regulations on banks' non-performing loans (NPLs) By analyzing banks in regions with strong environmental regulatory frameworks, we aim to uncover how these regulations affect loan portfolios and credit risk Key factors such as the rigor of environmental regulations, the composition of bank loan sectors, and borrowers' compliance with new environmental standards will be examined to provide comprehensive insights.
Objectives and task of the research cecsecsesssessessseseestesseestesseestesteeseesteseeatesseestenteeneenteess 11
This study aims to explore the influence of carbon taxes on the non-performing loan (NPL) status of banks, focusing on how these taxes impact the financial stability of businesses in carbon-intensive industries.
The study investigates the connection between carbon taxes and non-performing loans (NPLs), aiming to uncover the financial risks and opportunities linked to climate change mitigation policies This exploration highlights how carbon taxes can impact borrowers' repayment capabilities, ultimately influencing the overall financial landscape (Chiu, Huang, & Wu, 2020).
This research aims to explore the influence of carbon taxes on the non-performing loan (NPL) status of banks by undertaking several key tasks A thorough literature review will be conducted, focusing on studies related to carbon taxes, the banking sector, non-performing loans, and the relationship between carbon taxes and financial performance (Chiu, Huang, & Wu, 2020) This review will establish a theoretical framework and contextual basis for the research.
Data on carbon taxes and non-performing loans (NPLs) will be gathered from banks involved in carbon-intensive industries This analysis will shed light on the financial stability of businesses impacted by carbon taxes and their loan repayment capabilities By utilizing statistical analysis and econometric modeling, the study will quantitatively assess the relationship between carbon taxes and NPLs, revealing their overall impact.
This study seeks to uncover the factors and mechanisms that influence the relationship between carbon taxes and non-performing loans (NPLs) By analyzing these complexities, it aims to enhance understanding of how carbon taxes affect loan performance Ultimately, the findings will provide valuable conclusions and implications that can guide policy recommendations and risk management strategies for banks and policymakers.
This research investigates how environmental regulations, particularly carbon taxes, affect the economy by analyzing their impact on the non-performing loan (NPL) status of banks The study highlights the adverse effects of carbon taxes on high-emission businesses, which can subsequently influence the quality of bank loans Various studies have examined the connection between environmental regulations and financial results, underscoring the significance of this relationship in the banking sector.
Research by 12 and Leggio (2018) indicates a positive correlation between environmental regulations and non-performing loans (NPLs) within the banking sector Similarly, Chen and Martin (2020) demonstrate that banks with exposure to environmentally sensitive industries face heightened credit risk These findings underscore the necessity for further investigation into how environmental regulations influence NPLs This raises the question: does the implementation of a carbon tax disrupt business operations and subsequently increase a country's non-performing loans? This thesis aims to explore the impact of environmental regulation, specifically through the lens of carbon tax, on bank non-performing loans.
1.4 Object and scope of the study
This research analyzes data from over 30 countries between 2007 and 2021, focusing on key factors such as carbon tax, country delinquency, GDP growth, population growth, trade openness, and labor force participation rates The analysis employs fixed-effect regression models to derive insights from the collected data.
This research investigates the influence of carbon taxes on the non-performing loan (NPL) status of banks within a specific country It will assess how carbon taxes affect carbon-intensive industries and establish a correlation between these taxes and the overall loan performance in the country Furthermore, the study aims to offer recommendations for enhancing the effectiveness of carbon taxes, ultimately seeking to lower the NPL ratio of banks by suggesting actionable strategies for businesses, governments, and financial institutions.
The study employs regression analysis to investigate the impact of carbon taxes on the non- performing loan (NPL) status of banks.
This research examines the relationship between Non-Performing Loans (NPLs) as the dependent variable and carbon tax as the independent variable, alongside four control variables NPLs, which reflect the financial health of banks, are measured as a percentage of total gross loans in a country Data for this study is sourced from the World Bank database, ensuring a robust analysis of the impact of carbon tax on banking performance.
This study enhances industry literature by conducting a comparative analysis of the relationship between carbon tax and non-performing loans, incorporating various control variables to broaden the scope of comparisons The impact analysis generated serves as a valuable resource for discussions and benchmarking, establishing a connection between environmental factors and a country's financial status This research not only addresses existing gaps but also enriches the academic literature on the subject.
This research paper is structured as follows: Chapter 2 reviews existing studies, covering theoretical frameworks, foundational theories, and proposed hypotheses, while also examining the influence of carbon tax on non-performing loans Chapter 3 details the research methodology, and Chapter 4 presents the experimental results The paper concludes with a summary and implications of the findings.
This research is structured into six key sections, beginning with an introduction that outlines the topic and research objectives The subsequent section examines the carbon tax mechanism, detailing its forms of support and their effects on the non-performing loan status of banks Following this, the research methodology section elaborates on the study's data collection and analysis processes The results section highlights the findings regarding the impact of carbon taxes on non-performing loans in countries that have adopted these policies, while also suggesting solutions to assist businesses and banks The conclusion assesses the feasibility and effectiveness of these proposed solutions, offering recommendations and future directions Lastly, the reference section compiles all sources used in the research.
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This study analyzes data from over 30 countries between 2007 and 2021, focusing on key factors such as carbon tax, country delinquency, GDP growth, population growth, trade openness, and labor force participation rates The analysis employs fixed-effect regression models to derive insights from the collected data.
This research investigates how carbon taxes influence the non-performing loan (NPL) status of banks within a specific country, focusing on the effects these taxes have on carbon-intensive industries By establishing a connection between carbon taxes and the country's overall loan performance, the study aims to offer actionable recommendations for enhancing the effectiveness of carbon taxes Ultimately, it seeks to propose strategies for businesses, governments, and financial institutions to reduce the NPL ratio and promote sustainable economic growth.
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The study employs regression analysis to investigate the impact of carbon taxes on the non- performing loan (NPL) status of banks.
The research investigates the impact of carbon tax on non-performing loans (NPLs) in banks, using NPLs as the dependent variable, while incorporating carbon tax as the independent variable along with four control variables NPLs are quantified as a percentage of the total gross loans in a country, and the data for this study is sourced from the World Bank database.
This study enhances industry literature by conducting a comparative analysis of the relationship between carbon tax and non-performing loans, incorporating various control variables for a broader comparison The impact analysis generated serves as a valuable data source for discussions and benchmarking, illuminating the connection between environmental factors and a nation's financial health This research not only addresses existing gaps but also enriches the overall body of literature.
This research paper is structured as follows: Chapter 2 reviews prior studies, outlining theoretical frameworks and hypotheses, while examining the effects of carbon tax on non-performing loans Chapter 3 details the research methodology, and Chapter 4 presents the experimental results The paper concludes with a discussion of the findings and their implications for future studies.
This research is structured into six key sections, beginning with an introduction that outlines the topic and research objectives It then provides an overview of the carbon tax mechanism, examining its forms of support and their effects on the non-performing loan status of banks The research methodology section details the study's data collection and analysis processes Following this, the results section highlights the impact of carbon taxes on non-performing loans in countries that have adopted these policies and suggests solutions to aid businesses and banks The conclusion assesses the feasibility and effectiveness of these proposed solutions, offering recommendations and future directions Lastly, the reference section compiles the sources utilized in the research.
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This research comprises six key sections: an introduction outlining the topic and objectives, an overview of the carbon tax mechanism and its effects on banks' non-performing loan status, and a detailed research methodology describing data collection and analysis The results will highlight the impact of carbon taxes on non-performing loans in countries implementing these policies and suggest solutions for supporting businesses and banks The conclusion will assess the feasibility and effectiveness of these solutions, offering recommendations and future directions Lastly, the reference section will cite all sources utilized in the research.
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Definition of environment regulation and mechanism of carbon tax
Environmental regulations encompass a framework of rules, policies, and standards set by governments to safeguard the environment These regulations tackle critical issues such as pollution control, resource management, biodiversity preservation, climate change mitigation, and sustainable development By establishing clear guidelines for individuals and businesses, these regulations aim to reduce environmental harm and promote responsible resource stewardship The presence of these regulations and their enforcement serves as a crucial deterrent against environmental degradation (United Nations Environment Programme, 2021).
Environmental regulations serve multiple objectives that differ by jurisdiction, primarily focusing on pollution prevention, sustainable resource use, ecosystem protection, public health safeguarding, and climate change mitigation A key goal of these regulations is to preserve the environment by minimizing pollution, conserving natural resources, and protecting biodiversity They strive to maintain air, water, and soil quality while preventing ecosystem degradation, ensuring a healthier planet for future generations.
Environmental regulations prioritize community health and safety by establishing standards for managing hazardous substances, ensuring access to clean drinking water, and reducing exposure to pollutants (Howard et al., 2017; Pacheco-Torgal et al., 2021) Additionally, these regulations foster sustainable development by incorporating environmental factors into economic practices, striving for a balance between ecological integrity and economic growth.
15 economic growth with environmental protection, encouraging industries to adopt cleaner technologies, reduce waste generation, and optimize resource efficiency (Wu et al., 2019; Zhu et al., 2021).
Climate change mitigation is significantly advanced through environmental regulations that promote actions aimed at reducing greenhouse gas emissions, enhancing energy efficiency, and facilitating the shift to low-carbon economies (Sovacool et al., 2017; Olsen et al., 2020) These regulations establish monitoring and enforcement mechanisms, including inspections, permits, reporting requirements, and penalties for non-compliance, ensuring accountability and fostering responsible environmental practices Additionally, they align with international agreements like the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement, contributing to global efforts to tackle environmental challenges and achieve sustainable development (Althaus et al., 2019; Boas et al., 2021).
Environmental regulations implement monitoring and enforcement mechanisms to uphold environmental standards These regulations often encompass inspections, permits, reporting obligations, and penalties for non-compliance, all aimed at ensuring accountability and promoting responsible environmental practices (Tietenberg & Lewis, 2019; Downes et al., 2021).
Environmental regulations have led to significant improvements in environmental quality; however, they can also impose substantial costs on businesses It is essential to evaluate the costs and benefits of these regulations in comparison to alternative strategies (Portney, 2018; Hahn).
Effective management of environmental issues requires a multifaceted approach, including regulation as a key tool for enhancing environmental quality To achieve optimal results, regulation should be complemented by other strategies, such as incentives, to create a comprehensive framework for environmental improvement.
The history of environmental regulation has led to significant improvements in local environmental outcomes in developed countries; however, recent scientific evidence reveals that many environmental issues, particularly climate change, biodiversity loss, and habitat degradation, have worsened (Wilen, 2019; Vig & Kraft, 2019; Rockström et al., 2017; IPBES, 2019) Additionally, emerging challenges driven by technological advancements further complicate the environmental landscape.
Regulation is essential for advancements in sectors like biotechnology, fracking, nuclear energy, and solar power, as unregulated growth can lead to competition and profits at the expense of society and the environment The economic costs associated with effective environmental regulation are considerably lower than the irreversible damage caused to the planet's life systems.
In recent years, numerous environmental regulations have been implemented, with the carbon tax policy emerging as a key strategy aimed at reducing emissions and protecting the environment (Aldy & Stavins, 2020; Helm, 2021).
A carbon tax is an effective policy tool aimed at reducing greenhouse gas emissions across various sectors, including energy production, transportation, and industrial processes By imposing a price on carbon emissions, this tax incentivizes individuals and businesses to lower their carbon footprint To mitigate economic and social impacts, it may offer exemptions or rebates for specific industries and vulnerable populations The design of the carbon tax is crucial, as it must effectively promote sustainable development while minimizing adverse economic effects.
An effective carbon tax should be designed to promote emissions reduction while minimizing the economic burden on households and growth Ideally, this tax should align with the social cost of carbon and contribute to achieving climate objectives (Goulders and William, 2018) Sweden's experience, where a carbon tax was introduced and gradually increased since 1991 to approximately $120 per ton of CO2, demonstrates its potential to significantly lower overall emissions (Kander and Stern, 2020) However, it is important to recognize that carbon taxes can still impact businesses and the broader economy.
Revenue management of carbon tax involves the strategic allocation and use of funds generated from carbon taxes, playing a vital role in the successful implementation of carbon tax policies Effective management of these revenues can significantly impact both the efficacy and public acceptance of the carbon tax system The funds collected from carbon taxes can be utilized in diverse ways to support environmental initiatives and promote sustainable practices.
The fees generated from carbon taxes can fund vital climate change initiatives, including the development and deployment of renewable energy projects, research and development, and clean technology innovation Additionally, these revenues can support energy efficiency programs, such as retrofitting buildings and enhancing industrial processes, while promoting energy-saving practices in both businesses and households Furthermore, the revenue from carbon taxes can be utilized to reduce economically distorting taxes on labor and income through a strategy known as tax shifting, which seeks to alleviate the economic impact of the carbon tax while ensuring revenue neutrality.
Governments can establish dedicated funds for environmental protection and climate change mitigation, financed by carbon tax revenues These funds can support conservation projects, reforestation efforts, and environmental restoration initiatives Additionally, carbon tax revenues can be invested in green infrastructure, including public transportation systems, sustainable urban development, and electric vehicle charging networks, which help reduce carbon emissions and foster sustainable economic growth.