Climate change and bank stability: The moderating role of green financing and renewable energy consumption in ASEAN

The present investigation empirically determines the comparative as well as combine panel estimations for the relationship between climate change and bank stability in three selected ASEAN countries; Malaysia, Indonesia and Thailand with the moderation of green financing and renewable energy. Five leading banks were chosen from each country based on green financing usage. The dependent variable was bank stability, which was proxies by z-score of ROA and ROE along with SDROA and SDROE. Climate change was the main independent variable, which was proxies by CO2 emission while the control variable was organization quality. Panel data estimation was applied using a fixed effect, random effect and pooled OLS technique along with the Hausman test and LM test. Both Hausman and LM tests were not significant which conformed pooled data estimation as the appropriate modelling. The comparative findings indicate that bank stability strongly decreased by climate change in Malaysia, Indonesia and Thailand. The Green financing strongly enhances bank stability in the case of Malaysia and Thailand while renewable energy is a less important factor to enhance the bank stability for all the three countries. The moderation effect of green financing significantly enhances bank stability in the case of Malaysia and Thailand while the moderation effect of renewable energy enhances bank stability in the case of Malaysia and Indonesia only. The combined estimates conclude that climate changes strongly decreases the bank stability in the ASEAN region while the green financing and renewable energy positively influences the bank stability in this region with low significance. The moderation effect of green financing, as well as renewable energy positively, enhances the bank stability measures of ZROA and ZROE only in this region. The policy implication for this empirical investigation concludes that the policymakers in ASEAN region should promote green financing in all the banks with renewable energy in their economies as the source of alternative energy consumption to control to devastating changes in climate so that bank stability in this region is insured.