The The Effect of Sustainable Financial Policy Implementation on Banking Performance in Indonesia

Adilah Permananingrum; Riskon Ginting; Ahmad Sutanto; Arif Santoso; Husnil Barry

doi:10.26905/jmdk.v14i1.17409

Authors

Adilah Permananingrum Politeknik Negeri Jakarta
Riskon Ginting Politeknik Negeri Jakarta
Ahmad Sutanto Universitas Nasional
Arif Santoso Politeknik Negeri Jakarta
Husnil Barry Politeknik Negeri Jakarta

DOI:

https://doi.org/10.26905/jmdk.v14i1.17409

Keywords:

banking performance, green credit ratio, POJK, sustainable finance

Abstract

The implementation of sustainable finance has become an important policy instrument in encouraging the transformation of the financial sector toward sustainable economic development. In Indonesia, Peraturan OJK No.51/POJK.03/2017 was introduced to strengthen the integration of environmental, social, and governance principles within the financial services industry, particularly the banking sector. However, empirical evidence regarding the impact of this policy on banking performance in emerging economies remains limited. This study aims to examine the effect of sustainable finance policy implementation on banking performance in Indonesia and to identify the mechanisms through which the policy affects bank performance. This study employs a quantitative approach using the Difference-in-Differences method on a sample of BUKU 3 and BUKU 4 banks in Indonesia during the 2015–2024 period. Banking performance is measured using Net Interest Margin. In addition, this study investigates the mediating role of green credit ratio and operational efficiency proxied by Operating Expense Ratio. The findings indicate that the implementation of sustainable finance policy has a positive and significant effect on banking performance. The results further show that the green credit ratio significantly mediates the relationship between policy implementation and bank performance. However, operational efficiency measured by BOPO does not show a significant mediating effect. The study concludes that sustainable finance policy implementation contributes positively to banking intermediation performance, particularly through the expansion of green financing. These findings suggest that sustainable finance is not only a regulatory obligation but also a strategic opportunity to improve banking performance in Indonesia.

Downloads

Download data is not yet available.

References

Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific, and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2), 121–136. https://doi.org/10.1016/j.intfin.2006.07.001

Buallay, A. (2019). Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality: An International Journal, 30(1), 98–115. https://doi.org/10.1108/MEQ-12-2017-0149

Celestin, M., & Sujatha, S. (2024). Integrating ESG Factors Into Core Operations: Long-Term Benefits for Business Growth and Reputation. International Journal of Advanced Trends in Engineering and Technology (IJATET), 9(2), 33–43. https://doi.org/10.5281/zenodo.13887180

Chen, S., Song, Y., & Gao, P. (2023). Environmental, social, and governance (ESG) performance and financial outcomes: Analyzing the impact of ESG on financial performance. Journal of Environmental Management, 345. https://doi.org/10.1016/j.jenvman.2023.118829

Cui, Y., Geobey, S., Weber, O., & Lin, H. (2018). The impact of green lending on credit risk in China. Sustainability (Switzerland), 10(6). https://doi.org/10.3390/su10062008

Freeman, R. E. (2010). Strategic Management: A Stakeholder Approach. Cambridge University Press. https://doi.org/10.1017/CBO9781139192675

Geissdoerfer, M., Savaget, P., Bocken, N. M. P., & Hultink, E. J. (2017). The Circular Economy – A new sustainability paradigm? In Journal of Cleaner Production (Vol. 143, pp. 757–768). Elsevier Ltd. https://doi.org/10.1016/j.jclepro.2016.12.048

Khanchel, I., & Lassoued, N. (2022). ESG Disclosure and the Cost of Capital: Is There a Ratcheting Effect over Time? Sustainability (Switzerland), 14(15). https://doi.org/10.3390/su14159237

Lai, J., Liu, X., & Yuan, L. (2024). Can green credit policy increase corporate pollution abatement efforts? Evidence from China. International Review of Economics and Finance, 93, 797–813. https://doi.org/10.1016/j.iref.2024.05.026

Liu, S., Xu, R., & Chen, X. (2021). Does green credit affect the green innovation performance of high-polluting and energy-intensive enterprises? Evidence from a quasi-natural experiment. Environmental Science and Pollution Research, 28(46), 65265–65277. https://doi.org/10.1007/s11356-021-15217-2

Mirza, N., Afzal, A., Umar, M., & Skare, M. (2023). The impact of green lending on banking performance: Evidence from SME credit portfolios in the BRIC. Economic Analysis and Policy, 77, 843–850. https://doi.org/10.1016/j.eap.2022.12.024

OJK. (2017). Peraturan Otoritas Jasa Keuangan Nomor 51 /POJK.03/2017 tentang Penerapan Keuangan Berkelanjutan Bagi Lembaga Jasa Keuangan, Emiten, dan Perusahaan Publik.

OJK. (2023). Panduan Climate Risk Stress Testing Perbankan 2023 Volume 1.0.

Park, H., & Kim, J. D. (2020). Transition towards green banking: role of financial regulators and financial institutions. Asian Journal of Sustainability and Social Responsibility, 5(1). https://doi.org/10.1186/s41180-020-00034-3

Pham, D. C., Do, T. N. A., Doan, T. N., Nguyen, T. X. H., & Pham, T. K. Y. (2021). The impact of sustainability practices on financial performance: empirical evidence from Sweden. Cogent Business and Management, 8. https://doi.org/10.1080/23311975.2021.1912526

Saif-Alyousfi, A. Y. H., & Alshammari, T. R. (2025). Environmental Sustainability and Climate Change: An Emerging Concern in Banking Sectors. Sustainability (Switzerland), 17(3). https://doi.org/10.3390/su17031040

Spence, A. M. (1973). Market Signaling: Informational Transfer in Hiring and Related Screening Processes. Harvard University Press. https://doi.org/https://www.journals.uchicago.edu/doi/10.1086/260427

Tan, Y. (2014). Risk management and performance in the Chinese banking sector. In Performance, Risk and Competition in the Chinese Banking Industry (pp. 65–139). Chandos Publishing. https://doi.org/10.1533/9781780634463.65

Wang, X., & Wang, Q. (2021). Research on the impact of green finance on the upgrading of China’s regional industrial structure from the perspective of sustainable development. Resources Policy, 74(July), 102436. https://doi.org/10.1016/j.resourpol.2021.102436

Yan, Y. (2024). Does Green Credit Promote the Operating Performance of Commercial Banks?-Evidence from 21 Commercial Banks in China. Advances in Economics and Management Research FITED, 12, 2790–1661. https://doi.org/https://doi.org/10.56028/aemr.12.1.102.2024

Yin, X. (2021). Research on the Impact of Green Credit on the Financial Performance of Commercial Banks. Finance and Market, 6(1), 71. https://doi.org/10.18686/fm.v6i1.3267

Zhang, D., Mohsin, M., Rasheed, A. K., Chang, Y., & Taghizadeh-Hesary, F. (2021). Public spending and green economic growth in BRI region: Mediating role of green finance. Energy Policy, 153. https://doi.org/10.1016/j.enpol.2021.112256