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Liu, Jianghong and Naser, M. Abu (2024) Investigating the interplay of financial inclusion with bank performance. In: The 10th International Conference on CSR, Sustainability, Ethics & Governance, 12-14 June 2024, Sibiu, Romania. (Submitted)
The existing body of literature offers ample evidence supporting the positive correlation between financial inclusion and the enhancement of household well-being and economic growth. Insufficient focus has been given to exploring the potential social consequences of this developmental objective on the performance and risk of banks. This paper seeks to address this gap in the literature and examine how financial inclusiveness influences the performance and risk of large banks at both the supply and micro levels. The data on financial inclusion is extracted from the EIRIS and ESG Rating database, while financial data is collected from the Bloomberg database. Due to the financial inclusion data limitation, a total of 123 large banks are identified from the publicly traded bank institutions in the FTSE All World Index and the list of Global Systemically Important Banks (G-SIBs) designated by the Financial Stability Board (FSB) from 2011 to 2018. Utilising Ordinary Least Squares (OLS) estimation and OLS two-way clustering methods, the empirical results affirm the null hypothesis that heightened financial inclusiveness has a positive impact on the performance and mitigates the risk for financial service providers. This finding concurs with prior research, indicating that large banks with increased financial inclusivity typically exhibit elevated net interest margins alongside weakened efficiency. Although financial inclusion isn't a one-size-fits-all solution for boosting performance or mitigating risk, its degree of implementation carries substantial importance. Increased levels often correspond to improved outcomes. This research bridges the gap between theory and practical steps in promoting financial inclusion in banking.
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