ESG and Credit Risk: Evidence from Indonesian and Malaysian Banks

Authors

  • Annisa Fithria Universitas Ahmad Dahlan, Yogyakarta, Indonesia https://orcid.org/0000-0003-2491-7369
  • Surya Darma Universitas Gadjah Mada, Yogyakarta, Indonesia

DOI:

https://doi.org/10.12928/jreksa.v11i2.11252

Keywords:

ESG, Credit risk, NPL, Banks

Abstract

This study investigates the impact of Environmental, Social, and Governance (ESG) scores on credit risk, specifically Non-Performing Loans (NPL), in Indonesian and Malaysian banks, including both Islamic and conventional institutions. The study employs an unbalanced panel dataset from 12 Indonesian and 10 Malaysian banks over the period 2010-2023. Using fixed-effects regression models, the analysis explores whether higher ESG scores are associated with lower NPL levels. The results reveal that while overall ESG scores and their components—environmental, social, and governance—do not show significant impacts on NPL, bank size and economic growth are positively associated with credit risk. This research contributes to the understanding of ESG's role in financial stability within the banking sector, offering insights for policymakers, regulators, and stakeholders. By addressing a gap in the literature on ESG performance in banks, particularly in developing countries, the study underscores the importance of sustainable banking practices for enhancing financial stability and managing credit risk.

Author Biography

Annisa Fithria, Universitas Ahmad Dahlan, Yogyakarta, Indonesia

Accounting department Scopus ID | SINTA ID | Scholar | 

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Published

2024-08-28

Issue

Vol. 11 No. 2 (2024)

Section

Articles

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Copyright (c) 2024 Annisa Fithria, Surya Darma

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