Panel data analysis reveals regime-dependent geopolitical risk impacts on profitability across 135 OIC banks, suggesting ESG buffers conventional but not Islamic institutions.
Key Points
To examine how geopolitical risk influences bank profitability across OIC countries, evaluating the moderating roles of ESG performance, banking structure, and sukuk market depth.
Analyzed panel datasets of 135 Islamic and conventional banks across OIC member countries spanning 2006–2024 and 2021–2024.
Estimated relationships using Hansen's panel threshold model, mean-centered triple-interaction models, Johnson-Neyman regions, fixed effects, and a Mundlak decomposition.
Geopolitical risk (GPR) displays a regime-dependent relationship with return on assets (ROA), showing a weak positive association in lower-risk regimes and no supported decline during higher-risk regimes.
Higher ESG performance attenuates the adverse GPR association in conventional banks, whereas the conditional GPR effect remains statistically insignificant for Islamic banks.
Islamic banks exhibit a more favorable GPR association than conventional banks at low ESG levels, a relationship that reverses at elevated ESG levels, while sukuk depth shows no significant effect.