Risk management practice in Indonesian banking industry: The role of sustainable leadership and environmental volatility

Abstract

This research aims to enhance risk management practices, and an approach based on sustainable leadership is necessary. The study aims to develop a strategic model to enhance sustainable performance by strengthening risk management practices based on sustainable leadership. Additionally, this study aims to test the moderating impact of environmental volatility on the relationship between sustainable leadership and sustainable firm performance. The research sample consists of a survey of commercial banks in the KBMI II, III, and IV groups in Indonesia, with samples taken from the managerial level of banks composed of C-level, SVP, VP, AVP, and manager levels. This study uses convenience sampling to gather the required data by distributing an online questionnaire of 55 questions. A total of 117 valid responses were received and analyzed using partial least squares structural equation modeling. The results of the study prove that sustainable leadership positively influences risk management practices. The results also show that risk management practices and sustainable leadership positively affect sustainable firm performance. Further, environmental volatility insignificantly moderates the relationships between sustainable leadership and sustainable firm performance. These results indicate that the banks in Indonesia should implement a comprehensive approach that encompasses sustainable performance.