THE IMPACT OF ESG FACTORS ON LIQUIDITY RISK IN THE BANKING SYSTEM AT COMMERCIAL BANKS IN VIETNAM

Abstract

Abstract: In the context of globalization and increasing demand for sustainable development, governance according to Environmental – Social – Governance (ESG) standards has become an inevitable trend in the operations of major financial institutions, especially commercial banks. This study aims to assess the impact of ESG factors on liquidity risk in the banking system in Vietnam, thereby determining the role of sustainable management to stabilize the financial stability of banks. Based on data collected from Vietnamese commercial banks during the period 2015–2023, a panel regression model was used to examine the relationship between the overall ESG score and account risk, and to analyze the performance of each environmental, social, and governance component separately. The results show that banks with high ESG performance tend to have lower account risk, reflecting their ability to manage capital and assets more effectively, especially during periods of economic volatility. In particular, the governance factor plays the most prominent role in reducing liquidity risk, followed by the social factor, while the environmental factor has a positive effect but at a slower rate. contribute to the study to supplement empirical evidence on the benefits of ESG in the banking sector in emerging economies such as Vietnam, and at the same time suggest to policymakers and bank administrators on integrating ESG as an effective risk management tool in long-term development strategy.

Keywords: ESG, account risk, banking trade, sustainable development, risk risk management.