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This paper intends to discuss the internal banking factors and the performance of Environmental, Social, and Governance dimensions as influential factors of non-performing financing within Islamic banks in the Organization of Islamic Cooperation countries. Based on 388 observations from 50 Islamic banks between 2015 and 2022, panel data regression and system dynamics analysis indicate that profitability, as expressed by ROA, financing growth, and ESG scores, are negatively related to NPF, hence mitigating the risks of financing. On the contrary, CAR, FLP, and lagged NPF (NPFt-1) are positively related to a high level of risk of NPF. This paper highlights new facts related to sustainable finance in Islamic banking, particularly for the countries belonging to OIC, based on ESG performance integration. Results highlight that ESG integration is an integral factor contributing, together with strong profitability and sound risk management, to increasing financial stability and resilience.

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Does ESG Performance Affect Non-performing Financing? Evidence from Islamic Banks in OIC Countries

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  • 发表日期：

    2026年

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  • Bayu Arie Fianto,
  • Alif Fahril Aziz,
  • Putri Reno Kemala Sari,
  • Dian Filianti,
  • Hesti Eka Setianingsih

摘要

This paper intends to discuss the internal banking factors and the performance of Environmental, Social, and Governance dimensions as influential factors of non-performing financing within Islamic banks in the Organization of Islamic Cooperation countries. Based on 388 observations from 50 Islamic banks between 2015 and 2022, panel data regression and system dynamics analysis indicate that profitability, as expressed by ROA, financing growth, and ESG scores, are negatively related to NPF, hence mitigating the risks of financing. On the contrary, CAR, FLP, and lagged NPF (NPFt-1) are positively related to a high level of risk of NPF. This paper highlights new facts related to sustainable finance in Islamic banking, particularly for the countries belonging to OIC, based on ESG performance integration. Results highlight that ESG integration is an integral factor contributing, together with strong profitability and sound risk management, to increasing financial stability and resilience.