We examine the impact of competition and portfolio diversification on banking stability for conventional and Islamic banks in Indonesia. We find that the Islamic banking sector is less stable, when compared to the conventional banking sector. Competition in the banking sector reduces stability, while diversification enhances it. We find that competition negatively impacts the Islamic banks, but diversification has no impact on these banks. An interesting finding is that competition and diversification complement each other in enhancing the stability of the Indonesian banking sector. These findings carry an important policy implication for the banking sector of Indonesia.

Globally, the awareness about sustainability has increased due to the lingering environment, social and governance-related issues. In this perspective, the role of social media and consumer awareness are important since they influence the corporate sector to care for sustainable development. Banks, being very important to the economy, contribute to sustainability through their internal (through governance, data security, etc.) and external (through environment-friendly loans , financial inclusion, etc.) practices. These practices are collectively called as environment, society, and governance (ESG) sustainability. ESG practices by banks are important since they operate on public funds, have interconnections with the businesses and at times bailed out at the expense of taxpayers. An intriguing question, though, is whether these ESG activities impact bank profitability and risk. Further, as identified in the literature, there are certain moderators such as competition and institutions which may impact the ESG-profitability and ESG-risk relationship. We investigate these relationships for Organization for Islamic Countries (OIC) and Non-OIC countries. Specifically, we employ data of 341 banks from 65 countries, further divided into Non-OIC (54 countries, 295 banks) and OIC countries (11 countries, 46 banks). ESG data has been used for the years 2007-2016 while the dynamic panel model has been estimated using the Generalized Methods of Moments technique ...

This study aims to investigate whether banks’ environmental, social and governance (ESG) activities impact their profitability and stability. The authors also explore whether banking industry competition and the country’s regulatory quality moderate the impact of banks’ ESG on their profitability and stability. The sample includes data from 46 banks in 11 Organization of Islamic Countries (OIC) from 2010 to 2020. The authors have used the generalized method of moments (GMM) as the primary estimation model, with robustness tests to validate research findings. The results show that neither ESG nor its components impact bank profitability. Instead, ESG and its social component decrease bank stability. The findings neither support the stakeholder theory nor the risk-management view, which proposes that ESG activities improve financial performance and reduce unnecessary risks. However, an increase in market power (reduced competition) frees resources for banks, such that they focus more on ESG activities, which improves profitability, albeit at reduced stability levels. This finding supports the competition-related differentiation hypothesis. Finally, a country’s regulatory quality change does not influence bank ESG to impact its profitability or stability. This finding does not support the institutions-ESG proposition. This study has several limitations. First, constrained by data availability, the authors could not examine Islamic banks in OIC countries. Examining the ESG outcomes in Islamic banks would be interesting based on Islamic ethics and corporate social responsibility perspectives. The data set could also be more recent so that the differential impact of COVID-19 on bank ESG and financial performance could be estimated. The coverage of OIC countries was limited in our sample; this could be improved in future research. Banks should evaluate the focus and scope of their ESG activities, communicate their long-term strategic benefits with stakeholders and align ESG with their strategy and business model to offer innovative ESG-based products. They should also recalibrate ESG in their risk management framework to catalyse stability and stakeholders’ trust. Policymakers should control the level of competition so banks can foster ESG without sacrificing financial performance. Also, banks should be given regulatory incentives so ESG becomes integral to bank growth, direction and stability. ESG should be part of banks’ strategy and business model, to maximize its benefits for stakeholders, while maintaining competition and providing regulatory incentives. To the best of the authors’ knowledge, this is the first study to investigate the influence of bank ESG activities on their profitability and stability in OIC countries. The authors also extend the theoretical literature by connecting competition and regulatory quality to ESG-led financial performance.

The study aimed to determine the antecedents or drivers of the Halal food and beverage trade. The Halal F&B statistics were manually derived by applying the Shariah principle of "presumption of permissibility" and the WTO assumption when assigning HS codes on the specific trade concerns database to determine the approximate value of Halal F&B trade between countries, which is an important contribution of this study. We utilized the gravity model of international trade and the Poisson-Pseudo-Maximum Likelihood (PPML) approach, which is the gravity model's commonly suggested estimator. The examined samples include bilateral trade data from 59 nations (20 OIC members) between 2007 and 2016. The tested determinants are the variables of the economy, distance, level of income, exchange rate, regional trade agreement, common border, common language, colonial relationship, and landlocked commerce. Results indicate that the economic size of trade partners, regional trade agreements, shared borders, and common language significantly positively impact the value of Halal F&B exports. In contrast, distance, exporting nation income, exchange rate, and landlocked trade significantly negatively impact. Meanwhile, it appeared that neither the income level of the importing country nor its colonial relationship had a substantial impact on commerce.