Navigating geopolitical storms: ESG buffering, threshold effects, and bank resilience in Islamic versus conventional banking

OpenAlex İngilizce

Purpose This study aims to examine the association between geopolitical risk (GPR) and bank profitability in OIC countries, focusing on environmental, social and governance (ESG) performance, banking structure and sukuk market depth. Design/methodology/approach The study analyzes 135 Islamic and conventional banks using panels for 2006–2024 and 2021–2024. Hansen’s panel threshold model, a mean-centered triple-interaction model, Johnson-Neyman regions, fixed effects, bank controls, and a Mundlak decomposition are employed. Findings The GPR-profitability association is regime-dependent. GPR is positively but weakly associated with ROA in the lower-risk regime, while no supported decline appears in the higher-risk regime. ESG has no uniform direct association with ROA. For conventional banks, the adverse GPR association weakens as ESG rises within the observed range; for Islamic banks, the conditional GPR effect remains insignificant. Islamic banks show a more favorable GPR association at low ESG levels, but this reverses at higher levels. The Mundlak results locate the triple-interaction pattern mainly in persistent between-bank differences. Sukuk depth is insignificant in the principal specifications. Research limitations/implications The findings represent conditional associations rather than causal effects, and the short ESG window limits dynamic inference. Practical implications Supervisors should use regime-based GPR monitoring and bank-type-specific ESG frameworks rather than assume uniform resilience. Originality/value The study integrates threshold effects, ESG-conditioned bank-type differences, and within-between heterogeneity in one OIC banking framework.