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BPMJ
27,7
2144
Received 18 December 2020
Revised 17 February 2021
24 February 2021
Accepted 4 March 2021
Business Process Management
Journal
Vol. 27 No. 7, 2021
pp. 2144-2160
© Emerald Publishing Limited
1463-7154
DOI 10.1108/BPMJ-12-2020-0570
The role of technical efficiency,
market competition and risk in the
banking performance in
G20 countries
Yaoteng Zhao
Accounting Department, Business School, Liao Cheng University, Liaocheng, China
Supat Chupradit
Department of Occupational Therapy, Faculty of Associated Medical Sciences,
Chiang Mai University, Chiang Mai, Thailand
Marria Hassan
The Islamia University of Bahawalpur, Bahawalpur, Pakistan
Sadaf Soudagar
College of Business Administration, King Saud University, Riyadh, Saudi Arabia
Alaa Mohamd Shoukry
Arriyadh Community College, King Saud University, Riyadh, Saudi Arabia and
Workers University Egypt, Nasr, Egypt, and
Jameel Khader
College of Business Administration, King Saud University, Riyadh, Saudi Arabia
Abstract
Purpose – Recently, the financial sector has faced significant challenges regarding the market competition, its
technical efficiency and risk factors around the globe and gain recent researchers’ intentions. Thus, the present
study aims to examine the impact of technical efficiency, market competition and risk in banking performance
in Group of Twenty (G20) countries.
Design/methodology/approach – Data have been obtained from the World Development Indicator from
2008 to 2019. For analysis purpose, random effect model and generalized method of moments (GMMs) have
been executed using Stata.
Findings – The results revealed that market competition and banks’ capital efficiency have a positive impact
on banking performance, while banks’ lending efficiency and non-performing loans have a negative association
with the banking sector performance of G20 countries. These outcomes provide the guidelines to the regulators
that they should formulate the effective policies related to the lending practices and non-performing loans that
could improve the banking sector performance worldwide.
Research limitations/implications – The study has examined only three economic factors like the
technical efficiency rate, market competition and risk element, and their influences on banking institutions’
operational and economic performance. But the analysis has proved that except these factors, several factors
affect banking institutions’ operational and economic performance. Thus, future scholars recommend they
analyze all the banking sector areas, pick more factors and enlighten their operational and economic
performance influences. Moreover, the author of this article has chosen a particular source for collecting data to
meet his study’s objective. Only a single piece of software has been applied to analyze data; thus, the data
collected for this paper may be incomplete, lack accuracy and reliability. Therefore, the future authors are
recommended to use multiple sources to collect data and its analysis to ensure the comprehension,
completeness and accuracy.
Originality/value – Last but not least, this study with the evidences from the banking sector of G20 countries
tries to show on the banking management how the risk element matters in the banking sector in an economy.
The authors received funding for this work from the Deanship of Scientific Research at King Saud
University, through research group no RG-1435-075.
It makes it clear in which areas the banking institutions may be exposed to the risks, and how much sever Banking
different kinds of risks may be. Thus, it motivates the management to set a body of persons within the
organization to monitor the risks, to try to avoid them and to overcome the problems created by these risks performance in
events. G20 countries
Keywords Technical efficiency, Market competition, Risk, Banking performance, Non-performing loans,
G20 countries
Paper type Research paper
2145
Introduction
The performance of banking sectors and other financial institutions has been gaining the
attention from researchers, investigators and highly educated and talented scholars as all
the other economic sectors’ performance are dependent on the working of financial sectors.
The banking sectors and other financial institutions have backbone importance in an
economy because they provide financial support to all the other economic sectors (Siswanto
et al., 2019). This study aims to examine the operational and economic performance of the
banking sector and financial institutions and check the role of different factors like
technical efficiency, market competition and risk on the performance of the banking sector
or financial institutions with evidential support from the economies of Group of Twenty
(G20) countries. G20 summit is an international financial forum where the finance ministers
and some other government authoritative persons of the countries involved are gathered to
negotiate the financial issue found by them within their countries or financial issues
occurred across the world. The G20 forum aims to bring together systematically important
industrialized and developing economies to discuss the key issue in the global economy
(Qiao et al., 2019). This forum started in 1999 with G7 to overcome the problems aroused by
the worldwide financial crisis. Then, with the passage of time, the forum’s member
countries continued to increase, and finally, it goes to G20. This international forum of
finance and government authorities consists of 19 countries and the European Union (EU).
These countries are Argentine, Australia, Brazil, Canada, China, Germany, France, India,
Indonesia, Italy, Japan, Mexico, the Russian Federation, Saudi Arabia, South Africa, South
Korea, Turkey, the UK and the US (Hajnal, 2016). These G20 countries have a great worth
across the world economy as they collectively have 9% share in the gross world product
(GWP), 80% share in the world trade (If excluding EU intra-trade, 75%). G20 countries
consist of two-thirds of the world population, and about half of the world land area. Thus,
the international financial forum of G20 has tremendous global worth, especially in
banking and financial sectors (Paramati et al., 2017). This study analyzes the performance
of the banking sectors in the G20 countries and examines how much technical efficiency
along with economic efficiency, market competition and risks element effects on the
performance of these banking institutions.
Much of the literature has been devoted to analyzing the banking sector’s technical
efficiency and other financial institutions. It has become a widely researched and discussed
topic in the literature (Nigmonov, 2010). The technical efficiency of the banking economic
sector has become one of the most significant issues in the financial market because of the
crucial role of the bank’s technical efficiency in determining and indicating the stability in the
banking sector and, thereby, the overall financial system (Adusei, 2016). Technical efficiency
is the effectiveness of an institution to have the desired output by using given inputs. A bank
performing in a better way is supposed to have better technical efficiency along with
economic efficiency. Different methods can be applied to measure the technical efficiency of
the banks. Banks’ technical efficiency can be measured through ratio analysis in which
financial statements of particular banks are examined and compared with the benchmark
(Psillaki and Mamatzakis, 2017). Besides this, several other methods are used to check the
BPMJ banks’ technical efficiency, like parametric and non-parametric methods with applying
27,7 several techniques to analyze a set of data with some assumptions according to the structure
of production technology (Lema, 2017). Parametric methods consist of the stochastic frontier
approach (SFA), thick frontier approach (TFA) and distribution free approach (DFA). These
measures are used to measure economic efficiency. Non-parametric methods are data
envelopment analysis (DEAs) and free disposal hall (FDH) and these methods are applied to
measure the technical efficiency of the production banking units (Degl’Innocenti et al., 2017).
2146 The collaboration of 20 different countries under the forum of the G20 summit has
contributed a lot to the technical efficiency of the individual banks in these countries and the
overall banking sector and economic growth.
The market competition has significant importance in an economy as it triggers all
economic sectors’ performance, including the banking and financial sectors (Odonkor et al.,
2011). Competition in an economy is the rivalry among the different organizations that deal in
almost identical products or services facing the same focused audience to have more sales,
more revenue and more share in the market place than other enterprises (Bushman et al.,
2016). The study aims at examining the role of market competition in the banking sector. This
paper checks the influences of different kinds of competition in determining the performance
of banks. The competition that affects the banking sector’s performance is not compulsory
the market competition between different banks or banks and other financial institutions. As
the banks deal in deposits, loans, investment and other financial and economic activities, their
performance is also affected by the market competition among other economic industries
both at the national and international levels (Zigraiova and Havranek, 2016). The observation
of different banks in the G20 countries like Argentine, Brazil, Australia, Canada, India,
Malaysia, France, Germany, the UK, the US and others have indicated that the emerging
competition among the banking and financial institutions along with other economic sectors
positively affects the performance of individual banks and the banking sector as a whole unit.
Like other economic institutions, the banking sector also has to face several risks. There
are a large number of risks which are divided into several kinds like credit risks, market risks,
operational risks, liquidity risks, reputational risks and the essential systematic risks and
moral hazard. Some of these risks are less severe and defective to the banks while others are
more severe and defective as they not only affect only a particular banking institution but
affect the entire banking sectors, or if they affect only a particular bank, the effect is worse
(Varotto and Zhao, 2018). The most prominent example of the worst kind of bank risk like
systemic risks is the financial crises occurring in 2008, in which all banking sectors had to
suffer in the result of which G7 raised to G20. Since the banking sector is considered the
custodian of government revenues and public, different regulatory authorities within or
outside the institutions act to help monitor and minimize the chances and the consequences of
risks (Kayode et al., 2015). The members, along with the chairman of the G20 summit,
negotiate about the financial issues, try to find the causes of risks and overcome them.
Moreover, the individual G20 countries’ governments within their economies, establish
regulatory authority to regulate the banks and help them overcome the risks (Adusei, 2015).
Thus, the banking sector development and performance are essential for the country’s
economy, and Figure A1 shows some statistics about banking performance by country
(Wade, 2011).
This is an attempt to make this fact evident on the finance ministers and government
authorities of G20 countries and also of the remaining countries how much important role
does the technical efficiency along with economic efficiency play in the achievement of
superior banking performance in an economy. The financial sector has faced significant
challenges regarding the market competition, its technical efficiency and risk factors around
the globe, and gain recent researchers’ intentions that shows the significance of present study
to be executed. This study is significant for the banking management institutions and guides
them that on how to attain higher technical efficiency, how to measure it and how the rate of Banking
performance can be increased by accelerating the rate of technical efficiency. This paper also performance in
elaborates how much significant role does market competition both among the banking and
financial institutions and other economic institutions like institutions belonging to industrial,
G20 countries
trading, mining and service industries not only at national but also at international level play
in a banking sector and how it affects the banking performance. This paper makes it clear on
the management of banking enterprises along with financial institutions how the emerging
competition affects the operations and marketing. And it also tries to elaborate how the 2147
management can benefit from the healthy market competition by making necessary
amendments in its policies, strategies, procedures, techniques and technology. Thus, this
study explains how the market competition makes the banking institutions to bring
innovation in their services and operations which derive superior performance. Last but not
least, this study with the evidences from the banking sector of G20 countries, tries to show on
the banking management how the risk element matters in the banking sector in an economy.
It makes it clear in which areas the banking institutions may be exposed to the risks, and how
much sever different kinds of risks may be. Thus, it motivates the management to set a body
of persons within the organization to monitor the risks, to try to avoid them and to overcome
the problems created by these risks events.
The paper aims at examining the role of three factors technical efficiency, emerging
market competition, risks element in determining the performance of banks with the
evidential support from the G20 countries like the US, the UK, Canada, Malaysia, Brazil, Saudi
Arabia, South Africa, South Korea, Turkey, Mexico and several others with the help of proper
theoretical framework and methodology. In order to achieve the objectives, the paper proves
its study with discussion, implication and conclusion.

Literature review
It has been analyzed that the economies where the banking or financial sectors have a sound
basis are on track to make rapid progress. A banking sector and the financial institutions
meet the financial needs of the industrial and trading economic enterprises. They serve as the
financial source for all the other economic enterprises as it provides them with credits in
different kinds of nature. The financial and banking sectors are considered the custodian of
the public money and government revenues, so the banking sectors’ performance must be
good. Because of the vital importance in the economy, the banking sectors and its
performance has been analyzed by several economists and scholars alike (Epure and
Lafuente, 2015). Several factors affect the banks’ operational and economic performance, and
these effects may be either positive or negative. Some factors accelerate the banks’
performance rate and provide them with more competitive advantages over their rivals in the
markets. While other factors like risks adversely affect the performance rate of banking and
financial institutions and thereby the economic growth (Fukuyama and Matousek, 2017). It
has been analyzed that the poor or better performance of the banking or financial institutions
affects all other industrial, trading and service industries as affects the capital, respectively.
The technical efficiency of the banking sector has attained dominance in worldwide
literature. Many renowned scholars like Havidz and Setiawan (2015) have attempted to
address banks’ efficiency in different terms, considering its considerable importance in the
emerging economies. Banks efficiency is considered vital as it helps in deriving stability in
the banking sectors and thereby, the stability in the different economic sectors and the overall
economy. And the effectiveness of the overall financial sector is also dependent on the
efficiency of the banking sector in an economy. The banks’ technical efficiency affects the rate
of performance (both operational and economic) of individual banks and the overall banking
sector of a country, thereby determining the country’s economy’s growth rate. The previous
BPMJ studies like Partovi and Matousek (2019) have suggested that the technical efficiency is the
27,7 effectiveness with which desired output is attained with the use of specific inputs and a bank
is called to be technically efficient if the bank is producing the maximum output with the
minimum inputs like labor, technology, capital and technology. These studies elaborated that
the banks show higher operational and economic performance with higher technical
efficiency as when the available inputs are utilized in minimum quantity with proper
strategies to have the maximum output, the quality of operations is improved and the
2148 profitability rises. The studies of Matousek and Tzeremes (2016) have implied that the
technical efficiency of the banks can be measured by two measures DEA and FDH. These
studies also explained that mostly DEA is used to measure the banks’ technical efficiency,
which further determines the banks’ economic performance.
Based on DEA, the studies of Konara et al. (2019) have examined the technical efficiency of
270 banks in Canada with specific deposits. These studies have shown that the banks
employed three inputs like labor, purchased funds and capital and achieved five outputs
(different kinds of loans, i.e. commercial, consumers and industrial loans; demand, time and
saving deposits), and they show 75% average efficiency, while they can generate the same
output with 30% lower quantity of inputs. The total technical efficiency generates 78% pure
technical efficiency and 93% of scale efficiency, proving that the banks’ total efficiency is
closely related to technical efficiency. Fiafifah and Darwanto (2019) have used FDH to
evaluate the technical efficiency of banks about 230 banks in Malaysia, taking three inputs
like the total number of workers, occupancy costs on infrastructure and expenses on material
and five outputs like number of time and demand deposits, number of real estate, commercial
and installment loans, they come to the point that the banks have 20.2% of technical
efficiency. They prove that the rise in the technical efficiency rate measured by the maximum
production attained with the use of the minimum quantity of resources compared with the
estimated maximum outputs with fewer inputs affects banks’ performance. The banks’
operational performance and economic performance are influenced by the efficiency rate
(Defung et al., 2016). When only the available resources are applied even in lower quantity,
and the maximum output is attained, the banks can have superior profitability with the lower
cast. Thus, they succeed in showing better performance.
The emerging-market competition in the economy among different business units affects
the performance affects the operational, social and economic performance of a particular
business unit (Sillah et al., 2015). These studies first examine the kinds of competition in the
market based on the of different economic sectors, analyze both the positive and negative
impacts of market competition on the business enterprises and finally, conclude that the
market competition is of great importance as mostly the market competition motivate the
organizations to improve their operations, production, and marketing procedures and
techniques to show superior performance (Tan, 2016). Similarly, the market competition puts
healthy influences on operational efficiency, production and marketing efficiency. It proves to
be significant for the banking sectors two ways as the competition among banks directly
affects particular banking institutions’ performance in an economy both at the national and
international level. The market competition among the industrial and trading sectors also
affects banks’ performance as the banks play a crucial role in the operational and financial
departments of these economic sectors (Mamatzakis et al., 2016). The healthy competition
tends the banks look deep into the requirements, needs and demands of clients and, thus,
makes them aware of clients’ wants. In this way, the clients become more interested in giving
better services to them to have more competitive advantages over their market rivals.
Sometimes, banks have some weak points in their policies and strategies which affect their
services like handling of deposits, nature of loans, recovery ways and investment kinds, but
the emerging competition forces them to monitor the weak points in their policies and
strategies and to amend them to meet the market requirements (Batir et al., 2017).
 Moreover, the high healthy market competition makes the banks more active in improving Banking
the service quality which does not cause disturbance to the clients like a straightforward performance in
approach to bank branches, easy deposits and withdrawal, convenient policies that even the
uneducated clients can easily comprehend (Goetz, 2018). The better quality services from
G20 countries
the banks help increase the total number of clients and retain the existent clients; thus,
the healthy competition results in the sustainable and superior performance of banks. The
in-depth investigation has indicated that the banking institutions affected by the emerging
market competition with other banks, try to bring constant innovation in their products and 2149
introduce a new variety of services. It has been analyzed that the market competition in the
banking sector, brings improvement in their overall performance as it educates the banks
concerning the issue of how market factors move, how to achieve higher position for their
brands, how to launch new more cultivating programs, and finally, how to sell their products
in new marketplaces (Jiang et al., 2016). This investigation concludes that the healthy market
competition in the banking sector efficiently increases the demand of the products, boost
innovation, helps the banking institutions find competitive advantages, tends banks serve
the clients better, makes employees more efficient and accelerates the rate development of
banks. On the other hand, the past literature proves that market competition among the
industrial and trading enterprises also positively affects the banking sectors. When the
industrial enterprises try to give better quality products in response to emerging market
shifts and customers’ demands to have competitive advantages over their rivals, they need
better quality infrastructure and better material. To acquire higher-quality infrastructure,
machinery and services of more qualified employees, they need more financial resources, and
they can borrow money from the banking institutions to meet their needs. Thus, their
increasing demand motivates the banks to perform their functions in a better way (Uddin and
Suzuki, 2014). Similarly, the market competition among the enterprises in the trading sector
of the economy also affects the operational and economic performance of the banks. In order
to have competitive advantages over the market rivals, they try to improve their
communication network and transportation system for which they need better financial
resources and the need of financial resources can be met by taking credits from the banking
institutions. Thus, the trading enterprises facing market competition contribute to the
improvement in the performance of banks (Naceur and Omran, 2011). Besides, the market
competition among the enterprises in the service sectors like mining, tourism, hospital etc.
The studies have analyzed the emerging market competition among institutions performing
the function of rendering services in an economy and concludes that such market competition
puts influences directly on the performance of these institutions and indirectly on the
performance of banking institutions (Tan, 2016).
In the financial institutions like banks, the risk element is more likely to be found, which
affects the institutions’ performance (operational and economic performance). Several studies
have stepped forward to monitor the risks, their causes and evaluate their influences on
banks and financial institutions (Diallo, 2015). Several kinds of risks affect the banks, their
performance and thereby the economic growth of the country. These studies elaborate on
some specific kinds of risks that banks may have to face. According to these studies, these
risks are credit risks, market risks, operational risks, liquidity risks, business risks,
reputational risks, systematic risks and moral hazard. Some of the risks put worse impacts on
the banking performance while others are relatively severe as the large size of some banks,
the encounter to the risks may cause bank failure and affects a large set of people. Credit risk
is one of the worst risks for the bank, which occurs when borrowers or other parties cannot
abide by the contracts (Zhang et al., 2013). For example, there may be a risk if the bowers are
unable or unwilling to pay the loans back or default to pay the loans’ interest. Mostly, this
default occurs on credit cards, mortgage or fixed-income securities. Such risks may occur in a
context of derivatives or guarantees provided. Though risks management tries to avoid this
BPMJ kind of risk, the banks can still not be entirely safe from this because of their business nature
27,7 (Van Oordt and Zhou, 2019). Some studies have investigated into the performance of financial
institutions including banks. In this regard, these studies analyze the moral hazard that it is
common in financial institutions as they deal into money and make contracts with the
outsiders. If the risk that the contractors may not abide by the contract or provide misleading
information about its assets, liabilities or credit capacity but on the realization cost is born by
other institutional persons occurs it affects the reputation and thereby the performance of
2150 banks (Aebi et al., 2012).
The studies by Chen et al. (2018) address the liquidity risks exposed to the financial and
banking institutions and analyses if the liquidity risk come true it puts adverse impacts on
the banks’ reputation and thereby, on their performance as the clients are more likely to lose
their confidence in the bank when it shows even a slight delay in giving the deposits back to
some particular client. Banks’ performance is also affected by the operational risks that occur
on account of the mistakes, damages and interruptions committed by employees, procedures
or systems. The loss occurring due to human mistakes is likely due to any internal intentional
fraud during transactions. In this case, the breaching of cybersecurity of banking institutions
may be risky as it allows the hackers to steal crucial organizational information or money
from accounts and blackmail the institution for more money (Hakimi and Zaghdoudi, 2017). It
is riskier because the banks may lose the trust of customers in their performance and
activities. These studies also explain that institutions’ performance in banking sectors is
much affected by a market risk that occurs from a bank’s activities in capital markets. It
occurs due to the bank’s unpredictability of interest rates, equity markets, credit spreads and
equity markets. Banks face more risks if they are more involved in market activities, and in
this case, they may have to suffer more adversely (Khan et al., 2017). The most dangerous
risks are the systematic risk which is the most nightmarish scenario for the bank. This sort of
scenario occurred across the world in 2008. It is a scenario when the whole financial system is
jammed or come to a standstill. In this matter, the failure or default of a particular financial
enterprise may impart worse impacts on the performance of the entire system. The reason for
systematic risk may be an epidemic that requires a considerable safeguard for the public’s
health. It is a more dangerous risk as it is not limited to a single banking institution but to a
broader financial or banking sector (Baselga-Pascual et al., 2015).

Research methods
The present study aims to examine the impact of technical efficiency, market competition and
risk in banking performance in G20 countries. For this purpose, data have been obtained from
the World Development Indicator (WDI) from 2008 to 2019. Based on the past reviewed
literature, the present study has established the following estimation:
ROAit ¼ α0 þ β1 CFit þ β2 LNDit þ β3 MSit þ β4 MCit þ β5 LQRit þ β6 NPLSit
(1)
þ β7 CSit þ eit

Where;
ROA 5 Return on assets
i 5 Country
t 5 Time period
CF 5 Capital formation
MS 5 Market share
MC 5 Market concentration
 LQR 5 Liquidity risk Banking
NPLS 5 Non-performing loans performance in
CS 5 Country size
G20 countries
The study has taken banking performance as a predictive variable that is measured as the
ROA. In addition, the present study has used the market competition as a predictor that is
measured as the market size 5 total assets of one bank to the total assets of all banks, and 2151
market concentration 5 the sum of the squared market share value of each bank in the
banking sector. Moreover, banks’ efficiency has also been used as a predictor that is
measured as the gross capital formation (annual % growth) and net lending (þ) / net
borrowing () (% of GDP). Finally, the risk factor is also used as predictors that are measured
as the bank liquid reserves to bank assets ratio (%) and nonperforming bank loans to total
gross loans (%) and country size has been used as a control variable that is measured as the
total population of a country to total population of all countries. These variables are shown
with measurement in Table A1.
This study first checks the multicollinearity with the correlation matrix and variance
inflation factor (VIF). If the VIF values are less than five, then no issue of multicollinearity in
the model, and this is estimated as follows:
j ¼ RCF
2
; RLND
2
; RMS;
2 2
RMc; 2
RLQR; 2
RNPLS; 2
RCS; (2)
1
Tolrance ¼ 1  Rj2 VIF ¼ (3)
Tolerance
In addition, the random effect model (REM) has been executed by using Stata to test the
variables’ relationships. The REM can treat the intercept differently for the individual
country and assumes that the constructs are random and had mean of β1 and also proposes
that the selected country sample is derived from the large population that has common means
for β1 and reflected error term (ei) (Gujarati and Porter, 2003). The estimation of REF model is
as follows:
Yit ¼ β1 þ β2 X2it þ β3 X3it þ β4 X4it þ β5 X5it þ εi þ uit (4)
Yit ¼ β1 þ β2 X2it þ β3 X3it þ β4 X4it þ β5 X5it þ wit (5)

where, wit 5 ei þ mit , while the εi stands for “cross-section or individual-specific error
component while mit stands for he combined cross-section and time-series error component”.
By using this study variable, REM model estimation is as follows:
ROAit ¼ β1 þ β2 CFit þ β3 LNDit þ β4 MSit þ β5 MCit þ β6 LQRit þ β7 NPLSit
(6)
þ β7 CSit þ wit

Moreover, the generalized method of moments (GMM) model has also been examined to
analyze the relationships among the variables because it manages heterogeneity issues in the
model. The estimation of the system GMM model that is used in the study is as follows:
Yit ¼ δYi; t−1 þ β1 X1it þ β2 X2it þ β3 X3it þ β4 X4it þ uit (7)
where δY_(i, t–1) stands for the lag value of the main construct of the study and using the
current study constructs, the present study has developed the following estimation.
ROAit ¼ δROAi; t−1 þ β1 CFit þ β2 LNDit þ β3 MSit þ β4 MCit þ β5 LQRit
(8)
þ β6 NPLSit þ β7 CSit þ uit
BPMJ Findings
27,7 The findings show the descriptive statistics that highlighted the minimum and maximum
values along with mean and SD of the variables. The results exposed that the average ROA is
0.964% of the banking sector of G20 countries. In addition, average 3.121% non-performing
loans, 8.607% market share and 2.202% are the source of the banks’ capital formation. In
addition, the minimum ROA is 9.18, while minimum capital formation is 0.41. In addition,
minimum lending ratio is 15.838, while minimum market share is 5.699. Moreover,
2152 minimum market concentration is 0. Furthermore, the minimum liquidity ratio is 0.121, while
minimum non-performing loans are 0.098. In addition, the maximum ROA is 5.116, while
maximum capital formation is 67.389. In addition, maximum lending ratio is 11.933, while
maximum market share is 9.986. Moreover, maximum market concentration is 0.846.
Furthermore, the maximum liquidity ratio is 32.915, while maximum non-performing loans
are 18.064. In addition, the SD of ROA is 1.909, while SD of capital formation is 9.756. In
addition, SD of lending ratio is 3.439, while SD of market share is 0.617. Moreover, SD of
market concentration is 0.262. Furthermore, the SD of liquidity ratio is 8.468, while SD of non-
performing loans is 3.114. These values are mentioned in Table A2.
The correlation matric has shown the links among the variables. The values highlighted
no high linkage among the items while all the predictors have a positive association with the
bank performance except non-performing loans and lending of the banks. These values also
highlighted that the values of all the relationships are less than 0.90 that also show no
multicollinearity issue in the model. These are shown in Table A3.
The VIF is also shown by the study for checking of multicollinearity in the model. If the
values of VIF are less than five, then no multicollinearity exists in the model and the values
show that no multicollinearity exists in the model because the VIF values are lower than five.
These values have been highlighted in Table A4.
This study has also examined the normality of the variables, and values of the skewness
and kurtosis have shown that the probability values are less than 0.05 that is the indication of
normality issue in the model and to control this type of regression assumption violations, the
GMM model has been executed by the study. These values are highlighted in Table A5.
This study also exposed the Hausman test to check the model’s appropriateness. If the
values of this test are more than 0.05 then REM is appropriate because the null hypothesis
is about the REM is appropriate and the results accept the null hypothesis if the
probability values are more than 0.05. Thus, the probability value of results is larger than
0.05, which is the indication that REM is appropriate than the fixed effect model. These
values are mentioned in Table A6.
The outcomes also include the REM for testing the relationships, and the values show that
market competition and banks’ capital efficiency have a positive and significant impact on
banking performance because t-values are larger than 1.96 and p-values are less than 0.05
while banks’ lending efficiency and non-performing loans have a negative association with
banking sector performance of G20 countries. In addition, when there is 1% change in CF the
ROA will positively change by 0.031%, while due to lending ROA decrease by 0.042%.
Moreover, due to market share, the change in ROA will be 0.977% positively, and market
concentration also positively impacts and increases the ROA by 0.247% with 1% change in
MC. Furthermore, liquidity ratio could also increase the ROA by 0.031% with 1% change in
LQR; however, due to NPLS, the ROA decreases by 0.175% with 1% change in NPLS. These
relationships are shown in Table A7.
In addition, the current study also used the GMM model for the checking of association
among the variables and results revealed that market competition and banks’ capital
efficiency have a positive impact on banking performance, while banks’ lending efficiency
and non-performing loans have a negative association with banking sector performance of
G20 countries. These outcomes are shown in Table A8.
Discussion and implication Banking
The study results have revealed that the banking sector’s technical efficiency positively performance in
relates to banking performance, but the banks of G20 countries are not maintaining the
effective lending practices that could affect the banking performance. These results are in line
G20 countries
with the past studies of Halkos et al. (2016), which show the banks’ ability to attain maximum
output with the minimum quantity of inputs. These studies show the significant importance
of technical efficiency in the banking sector. It has been elaborated by these studies that the
improvement in the rate of technical efficiency accelerates banking institutions’ operational 2153
and economic performance. The studies also approve these results of Tsionas and
Mamatzakis (2017), which show the importance of high technical efficiency in attaining
superior operational and economic performance. These studies recommend the management
of banking and financial institutions to form their strategies, technology, procedures and
combination of factors in such a way as to attain optimal output by employing minimum
quantity of available inputs. Moreover, the results have indicated that the emerging market
competition is linked with banking and financial sectors’ operational and economic
performance. These results are approved by the studies of Pruteanu-Podpiera et al. (2016),
according to which the market competition has a positive association with the performance
rate of banking and financial institutions as it motivates them to improve their service which
may meet the customers’ needs and demands. It is suggested by these studies that both the
market competition among banking and financial institutions and among different
enterprises in other economic industries affects the banking performance. The studies also
approve these results of Jayakumar et al. (2018), which also reveal that the emerging market
competition positively affects the banking sector’s operational performance and make them
grow with increasing rate. These studies elaborate that the emerging market competition
results in the improved services as the banks try to have complete information about the
changing market trends and customers’ requirements and adapt their activities to adapt to
these shifts and requirements. Moreover, the study results have indicated that the risks
elements have considerable influence on operational and economic performance. This study
proposes that different risks adversely impact the, reputation, and operational and economic
performance and these should be minimized by establishing effective risk management.
These results are approved by the past study of Nikolaou et al. (2015), which throw light on
the fact that several kinds of risks the banking institutions may have to face more severe
impacts on the banking performance while others are less severe. These studies also agree
with the past studies of Lehkonen and Heimonen (2015), which also prove the same fact that
there are several risks banking sector that may adversely affect the banks’ performance and
economic position.
The study proves to be of great significance both from the theoretical point of view and
from the perspective of an empirical implication. The makes a lot of contribution to the
literature on banking and financial management. The study has introduced the G20 summit,
an international forum of finance ministers and authoritative government persons, consisting
of 19 countries and the EU. It states the worth of G20 countries as a whole and that their basic
purpose is to handle financial issues of member countries. This study provides the guidelines
to the regulators that they should formulate the effective policies related to the lending
practices and non-performing loans that could improve the banking sector performance
worldwide. The study examines the role of three significant factors like technical efficiency,
market competition and risk element in the banking sector in the G20 countries. It addresses
the influences of these factors on the operational and economic performance of banks. The
study makes an empirical implication as it guides the government regulators and banking
management on improving the operational and economic performance. It guides the
management to improve the operational, service and economic performance of the banking
institution by attaining optimal desired outputs with the use of available inputs in a minimum
BPMJ quantity. It also suggests the ways to take more advantages from the market competition
27,7 both with other banking institutions or the emerging market competition among the
organization involved in economic industries other than banking sector. Besides, the paper
attempts to lead the management in achieving higher performance by making it apparent on
it how much risks element matters in banking sector. It also guides the management to
improve the efficiency of business by establishing risk management, which can monitor the
risks factors which may occur in the banking sector and overcome these risks.
2154
Conclusion
In the conclusion of the study, it can be said that this paper has been written to examine the
banking performance (operational and economic performance) and also analyzes the
movement in the performance rate of banking institutions due to the movement in
the technical efficiency rate, market competition and the occurrence of different kinds of risks
in a different circumstance. The study analyses that technical efficiency has a significant and
positive association with the performance of banking institutions. The banking institutions’
technical efficiency is the effectiveness with which the banks produce the maximum output
with the utilization of a minimum quantity of available inputs. Thus, the higher the rate of
technical efficiency, the higher is the performance rate of banking institutions. Moreover, the
study suggests that emerging market competition is considerably associated with banking
institutions’ performance rate. To cope with the emerging market competition, the banking
organizations must improve their services, in the efficiency of their employees and
operational activities. To have competitive advantages over the market rivals banks must try
to know the requirements of their customers, general demand and benchmark rates, and they
must try to adapt to them. Besides, the results conclude that the risk element has a significant
role in the banking sector. It puts considerable influences on the operational performance and
thereby, on their economic performance. Thus, this study explains how the market
competition makes the banking institutions to bring innovation in their services and
operations which derive superior performance. It implies that in order to avoid different kinds
of risks and to remove the adverse consequences of the banks being exposed to these risks,
banks should take necessary steps like the establishment of an effective management.

Implication
The study has thrown ample light on the banking performance and examines the movement
of performance with the movement in other economic factors; still, it has many limitations.
For example, the study has examined only three economic factors like the technical efficiency
rate, market competition and risk element, and their influences on banking institutions’
operational and economic performance. But the analysis has proved that except these factors,
several factors affect banking institutions’ operational and economic performance. Thus,
future scholars recommend they analyze all the banking sector areas, pick more factors and
enlighten their operational and economic performance influences. Moreover, the author of
this article has chosen a particular source for collecting data to meet his study’s objective.
Only a single piece of software has been applied to analyze data; thus, the data collected for
this paper may be incomplete lack accuracy and reliability. Therefore, the future authors are
recommended to use multiple sources to collect data and its analysis to ensure the
comprehension, completeness and accuracy.

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BPMJ Appendix
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S# Variables Measurement

01 Banking Return on assets

performance
02 Market Market size 5 total assets of one bank to the total assets of all banks
competition Market concentration 5 the sum of the squared market share value of each bank
in the banking sector
03 Bank efficiency Gross capital formation (annual % growth)
Net lending (þ) / net borrowing () (% of GDP)
Table A1. 04 Risk Bank liquid reserves to bank assets ratio (%)
Measurements of Bank nonperforming loans to total gross loans (%)
variables 05 Country size Total population of a country to total population of all countries

Variable Obs Mean Std. Dev. Min Max

ROA 240 0.964 1.909 9.18 5.116

CF 240 2.202 9.756 41 67.389
LND 240 2.169 3.439 15.838 11.933
MS 240 8.607 0.617 5.699 9.986
MC 240 0.246 0.262 0 0.846
LQR 240 6.895 8.468 0.121 32.915
Table A2. NPLS 240 3.121 3.114 0.098 18.064
Descriptive statistics CS 240 5.028 0.824 2.862 6.399
 Banking
performance in
Variables ROA CF LND MS MC LQR NPLS CS G20 countries
ROA 1.000
CF 0.019 1.000
LND 0.114 0.193 1.000
MS 0.138 0.126 0.176 1.000 2159
MC 0.061 0.039 0.190 0.478 1.000
LQR 0.026 0.068 0.068 0.007 0.005 1.000
NPLS 0.019 0.101 0.088 0.007 0.171 0.107 1.000 Table A3.
CS 0.236 0.072 0.159 0.539 0.372 0.036 0.011 1.000 Correlation matrix

VIF 1/VIF

MS 1.641 0.609
CS 1.454 0.688
MC 1.413 0.708
LND 1.106 0.904
NPLS 1.077 0.929
CF 1.063 0.941 Table A4.
LQR 1.027 0.974 Variance inflation
Mean VIF 1.254 factor

Obs Pr(Skewness) Pr(Kurtosis) Adj_χ 2(2) Prob > χ 2

ROA 240 0.000 0.000 0.000

CF 240 0.000 0.000 55.840 0.000
LND 240 0.526 0.000 15.510 0.000
MS 240 0.000 0.000 37.490 0.000
MC 240 0.000 0.001 27.630 0.000
LQR 240 0.000 0.001 51.220 0.000 Table A5.
CS 240 0.000 0.328 18.950 0.000 Skewness and
NPLS 240 0.000 0.000 0.000 kurtosis test

Coef

Chi-square test value 8.044 Table A6.

p-value 0.329 Hausman test
BPMJ ROA Beta S.D. t-value p-value L.L. U.L. Sig.
27,7
CF 0.031 0.11 2.82 0.031 0.019 0.212 **
LND 0.042 0.033 1.27 0.206 0.108 0.023
MS 0.977 0.276 3.54 0.000 1.519 0.436 ***
MC 0.247 0.112 2.21 0.045 1.459 3.952 **
LQR 0.031 0.013 2.38 0.048 0.013 2.075 **
2160 NPLS 0.175 0.055 3.18 0.019 0.234 0.183 **
CS 1.319 0.311 4.25 0.000 0.711 1.928 ***
Constant 2.141 1.101 2.12 0.048 1.977 6.258 **
Overall r-squared 0.643 Number of obs 240.000
Table A7. Chi-square 24.041 Prob > χ 2 0.001
Random effect model Note(s): ***p < 0.01, **p < 0.05, *p < 0.1

ROA Beta S.D. t-value p-value L.L. U.L. Sig.

ROA(1) 0.541 0.213 2.54 0.019 0.215 0.934 **

CF 0.026 0.011 2.36 0.024 0.027 0.416 **
LND 0.115 0.037 3.08 0.002 0.189 0.042 ***
MS 0.646 0.328 1.97 0.045 1.963 3.671 **
MC 2.455 1.151 2.13 0.048 0.602 5.513 **
LQR 0.163 0.049 3.31 0.001 0.066 0.261 ***
NPLS 0.06 0.094 0.63 0.527 0.126 0.245
CS 1.65 0.576 2.86 0.005 0.513 2.786 ***
Table A8. Mean dependent var. 0.950 SD dependent var. 1.872
Generalized method of Number of obs 220.000 F-test 4.533
moments (GMMs) Note(s): ***p < 0.01, **p < 0.05, *p < 0.1

Corresponding author
Supat Chupradit can be contacted at: supat.c@cmu.ac.th

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