<p>In response to growing global concerns about sustainability, banks are increasingly integrating green and responsible practices into their core operations. This study examines the relationships between sustainable banking practices, financial stability, and financial performance in the Chinese banking sector, drawing on Stakeholder Theory and Legitimacy Theory. Using survey data collected from bank employees in China and analyzed through Partial Least Squares Structural Equation Modeling (PLS-SEM), the findings show that sustainable banking practices—encompassing green finance, green banking, and corporate social responsibility—positively influence both financial stability and financial performance. Financial stability further contributes to improved financial performance, highlighting its role as a key transmission mechanism. Moreover, green financial literacy emerges as an important mediating factor that strengthens the effectiveness of sustainable banking practices in enhancing financial outcomes. Thus, the results demonstrate that sustainability-oriented banking strategies can generate meaningful financial benefits while reinforcing institutional resilience. The study offers valuable insights for policymakers and bank managers in China by emphasizing the importance of promoting sustainable banking practices and investing in green financial literacy initiatives to support long-term financial performance and stability.</p>