Does ESG performance reduce banks’ nonperforming loans?

Suyi Liu, Justin Jin and Khalid Nainar

Finance Research Letters, 2023, vol. 55, issue PA

Abstract: This study investigates the association between a bank's nonperforming loans and its ESG (environmental, social, and governance) performance. Using data from U.S. commercial banks, we find that a bank's ESG rating is negatively associated with its nonperforming loans. Furthermore, we document that a bank's high performance in all three pillars of ESG evaluation reduces its ratio of nonperforming loans. Our study finds that a bank's favorable ESG performance improves its loan quality and provides archival evidence of the importance of all three pillars of ESG.

Keywords: ESG rating; Bank loan quality; Nonperforming loan; ESG pillars (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002313

DOI: 10.1016/j.frl.2023.103859

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