The Effect of Macroeconomic Risks on the Net Interest Margin, with ESG as a Moderating Factor in the Banking Sector

Abstract

This study analyzes the effect of macroeconomic risks—including interest rate risk, inflation risk, economic growth risk, and exchange rate risk—on the Net Interest Margin (NIM), and examines the role of Environmental, Social, and Governance (ESG) as a moderating variable. The study focuses on commercial banks in Categories 3 and 4 of the Core Capital Bank Group (KBMI) listed on the Indonesia Stock Exchange from 2021 to 2025. Purposive sampling yielded 10 banks with 50 observations (a strongly balanced panel). Macroeconomic risks are measured as the squared deviation of realized values from the state budget’s macroeconomic assumptions, with the exchange rate deviation expressed as a percentage so that all four risk variables share the same unit. All variables are mean-centered before forming the interaction terms to avoid multicollinearity. The analysis employs panel data regression using a robust Fixed Effects Model (FEM) and Moderated Regression Analysis (MRA). The results show that interest rate risk and inflation risk both have a positive and significant effect on NIM at the 5% level, while economic growth risk and exchange rate risk are not statistically significant. The ESG Score neither directly affects NIM nor moderates the relationship between macroeconomic risk and NIM. These findings indicate that the interest margins of large banks are most responsive to the two most direct sources of funding cost pressure—namely, interest rate and inflationary pressure—while the benefits of ESG are more long-term and structural. Bank management should strengthen credit pricing strategies to counter interest rate and inflationary pressure.