The mediating role of green financing in relationship between climate change and bank stability among Tiger Cub Economies

Banking stability is paramount for economic growth. A sound financial intermediation process leads to the creation of friendly environmental loans from depositors to borrowers, guaranteeing the nation's development and sustainability. However, banking businesses through credit facilities could severely cause environmental degradation and economic development. The non-green financing facilities have impacted climate change to hike and become uncontrollable. An ongoing debate pertaining to the relationship between climate change and bank stability raised remarkable attention amongst scholars, in which practicing green financing may reduce climate change and enhance bank stability. Therefore, this study aims to examine the impact of climate change on bank stability and the mediating effect of green financing on the relationship between climate change and bank stability in the Tiger Cub economies region, which includes Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. The data was collected from the Fitch Connect website for a period from 2012 until 2021 and analysed using static panel data based on pooled Ordinary Least Square (OLS) and Random Effect (RE)/Fixed Effect (FE) regression model. The current study also employed a Panel Autoregressive Distributed Lag (ARDL), which examined the short-run and longrun relationship between variables. The general findings suggest that climate change significantly impacts significantly and negatively the bank stability in the Tiger Cub economies region. Additionally, findings showed that green financing plays a significant mediating role in influencing the relationship between climate change and bank stability. However, findings produced by Panel ARDL estimation suggest that the direct impact of climate change and green financing towards bank stability only applies in the long run. The current study provides several important implications especially for the policymakers in the Tiger Cub Economics region, by promoting green financing in the bank's business as an alternative to control climate change impacts in order to maintain bank stability.