Vol. 11 No. 3 (2025): Finance and Banking
Issue Articles

ESG Integration and Non-Performing Loans (NPLs) in Central Asian Banking Systems

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  • Shoxruxbek Qudratov
Shoxruxbek Qudratov
Bank moliya akademiyasi

Published 2025-09-15

How to Cite

Qudratov, S. (2025). ESG Integration and Non-Performing Loans (NPLs) in Central Asian Banking Systems. FINANCE AND BANKING, 11(3), 65–75. Retrieved from https://journal.bfa.uz/index.php/bfaj/article/view/358

Abstract

This study provides the first empirical investigation into the relationship between Environmental, Social, and Governance (ESG) performance and bank credit risk in the Central Asian region. Utilizing a unique, hand-collected panel dataset of 32 commercial banks from Kazakhstan, Uzbekistan, Kyrgyzstan, and Tajikistan from 2015 to 2024, we examine how ESG scores influence non-performing loan (NPL) ratios. Employing both fixed-effects and System Generalized Method of Moments (GMM) models to control for endogeneity and unobserved heterogeneity, our results reveal a significant negative association between aggregate ESG performance and NPL ratios. A granular analysis of the ESG pillars demonstrates that this effect is primarily driven by robust Governance, with a secondary significant contribution from Social performance. The Environmental pillar, however, shows an insignificant relationship, suggesting its channel to credit risk is less direct in the region’s current economic structure. These findings underscore that ESG adherence, particularly strong governance and social practices, constitutes a material risk mitigation tool rather than a mere symbolic gesture. The study offers critical insights for bank managers, regulators, and international institutions, advocating for the integration of ESG factors, especially governance, into the core of prudential risk management frameworks to enhance financial stability in emerging markets.

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