Linking financial performance and efficiency to sustainability in banking sector: a literature synthesis
Abstract
Efficiency generally translates to better financial performance and profitability and, thus, is often taken into account when analyzing activity of the banking sector. The sustainability approach adds social and environmental effects to the economic ones. Even though there have been studies on the different facets of the sustainable banking and its dimensions, it is important to discuss the integration of the sustainability concept with banking efficiency and financial performance measures. The objective of this research is to identify the prevailing indicators of sustainable banking in the presence of considerations on bank financial performance and efficiency. Such indicators can be used in multiple frameworks directed towards specific goals. Therefore, this paper also discusses the notions of the sustainable banking alongside the used methods used to handle the sustainability indicators. Thus, this paper presents the comprehensive review of sustainable banking linked to financial performance and efficiency, where indicators, and methods are analyzed in an integrated manner.
Keyword : banking, sustainability, indicators, analytical framework, sustainable banking, efficiency, financial performance, ESG
How to Cite
Krisciukaityte, K., Balezentis, T., & Streimikiene, D. (2023). Linking financial performance and efficiency to sustainability in banking sector: a literature synthesis. Journal of Business Economics and Management, 24(3), 506–526. https://doi.org/10.3846/jbem.2023.19462
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Laeven, L., & Valencia, F. (2008). Systemic banking crises: A new database (IMF Working Papers 08/224). International Monetary Fund. https://doi.org/10.5089/9781451870824.001
Manta, F., Tarulli, A., Morrone, D., & Toma, P. (2020). Toward a quadruple bottom line: Social disclosure and financial performance in the banking sector. Sustainability, 12(10), 4038. https://doi.org/10.3390/su12104038
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Saïdane, D., & Abdallah, S. B. (2020). Sustainability and financial stability: Evidence from European banks. Economics Bulletin, 40(2), 1769–1780.
San-Jose, L., Retolaza, J. L., & Lamarque, E. (2018). The Social efficiency for sustainability: European cooperative banking analysis. Sustainability, 10(9), 3271. https://doi.org/10.3390/su10093271
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Weber, O. (2016). The sustainability performance of Chinese banks: Institutional impact. https://doi.org/10.2139/ssrn.2752439
Wu, M. W., Shen, C. H., & Chen, T. H. (2017). Application of multi-level matching between financial performance and corporate social responsibility in the banking industry. Review of Quantitative Finance and Accounting, 49(1), 29–63. https://doi.org/10.1007/s11156-016-0582-0
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Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2), 121–136. https://doi.org/10.1016/j.intfin.2006.07.001
Baselga-Pascual, L., Orden-Olasagasti, D., & Trujillo-Ponce, A. (2018). Toward a more resilient financial system: Should banks be diversified? Sustainability, 10(6), 1903. https://doi.org/10.3390/su10061903
Bătae, O. M., Dragomir, V. D., & Feleagă, L. (2021). The relationship between environmental, social, and financial performance in the banking sector: A European study. Journal of Cleaner Production, 290, 125791. https://doi.org/10.1016/j.jclepro.2021.125791
Bhaskaran, R. K., Sujit, K. S., & Mongia, S. (2021). Linkage between performance and sustainability initiatives in banking sector – An empirical examination. International Journal of Productivity and Performance Management. https://doi.org/10.1108/IJPPM-07-2020-0385
Birindelli, G., Ferretti, P., Chiappini, H., & Cosentino, A. (2020). Intellectual capital disclosure: Some evidence from healthy and distressed banks in Italy. Sustainability, 12(8), 3174. https://doi.org/10.3390/su12083174
Buallay, A. (2018). Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality: An International Journal. https://doi.org/10.1108/MEQ-12-2017-0149
Buallay, A., Fadel, S. M., Al-Ajmi, J. Y., & Saudagaran, S. (2020a). Sustainability reporting and performance of MENA banks: Is there a trade-off? Measuring Business Excellence, 24(2), 197–221. https://doi.org/10.1108/MBE-09-2018-0078
Buallay, A., Fadel, S. M., Alajmi, J., & Saudagaran, S. (2020b). Sustainability reporting and bank performance after financial crisis: Evidence from developed and developing countries. Competitiveness Review: An International Business Journal, 31(4), 747–770. https://doi.org/10.1108/CR-04-2019-0040
Costa-Climent, R., & Martínez-Climent, C. (2018). Sustainable profitability of ethical and conventional banking. Contemporary Economics, 12(4), 519–531.
da Silva Inacio, L., & Delai, I. (2021). Sustainable banking: A systematic review of concepts and measurements. Environment, Development and Sustainability, 1–39. https://doi.org/10.1007/s10668-021-01371-7
Forcadell, F. J., Aracil, E., & Úbeda, F. (2019). The influence of innovation on corporate sustainability in the international banking industry. Sustainability, 11(11), 3210. https://doi.org/10.3390/su11113210
Galletta, S., Mazzù, S., & Naciti, V. (2022). A bibliometric analysis of ESG performance in the banking industry: From the current status to future directions. Research in International Business and Finance, 62, 101684. https://doi.org/10.1016/j.ribaf.2022.101684
Gemar, P., Gemar, G., & Guzman-Parra, V. (2019). Modeling the sustainability of bank profitability using partial least squares. Sustainability, 11(18), 4950. https://doi.org/10.3390/su11184950
Gerster, R. (2012). Sustainable finance: Achievements, challenges, outlook. Striking a balance ahead of Rio+20.
Gutiérrez-López, C., & Abad-González, J. (2020). Sustainability in the banking sector: A predictive model for the European Banking Union in the aftermath of the financial crisis. Sustainability, 12(6), 2566. https://doi.org/10.3390/su12062566
Ioan, B., Malar Kumaran, R., Larissa, B., Anca, N., Lucian, G., Gheorghe, F., Horia, T., Ioan, B., & Mircea-Iosif, R. (2020). A panel data analysis on sustainable economic growth in India, Brazil, and Romania. Journal of Risk and Financial Management, 13(8), 170. https://doi.org/10.3390/jrfm13080170
Jeucken, M., & Bouma, J. J. (2017). The changing environment of banks. In Sustainable banking (pp. 24–38). Routledge. https://doi.org/10.4324/9781351282406-2
Karkowska, R. (2020). Business model as a concept of sustainability in the banking sector. Sustainability, 12(1), 111. https://doi.org/10.3390/su12010111
Khan, M. A., Siddique, A., & Sarwar, Z. (2020). Determinants of non-performing loans in the banking sector in developing state. Asian Journal of Accounting Research, 5(1), 135–145. https://doi.org/10.1108/AJAR-10-2019-0080
Korzeb, Z., & Samaniego-Medina, R. (2019). Sustainability performance. A comparative analysis in the Polish banking sector. Sustainability, 11(3), 653. https://doi.org/10.3390/su11030653
Laeven, L., & Valencia, F. (2008). Systemic banking crises: A new database (IMF Working Papers 08/224). International Monetary Fund. https://doi.org/10.5089/9781451870824.001
Manta, F., Tarulli, A., Morrone, D., & Toma, P. (2020). Toward a quadruple bottom line: Social disclosure and financial performance in the banking sector. Sustainability, 12(10), 4038. https://doi.org/10.3390/su12104038
Mercieca, S., Schaeck, K., & Wolfe, S. (2007). Small European banks: Benefits from diversification? Journal of Banking & Finance, 31(7), 1975–1998. https://doi.org/10.1016/j.jbankfin.2007.01.004
Nájera-Sánchez, J. J. (2020). A systematic review of sustainable banking through a co-word analysis. Sustainability, 12(1), 278. https://doi.org/10.3390/su12010278
Niţescu, D. C., & Cristea, M. A. (2020). Environmental, social and governance risks – new challenges for the banking business sustainability. Amfiteatru Economic, 22(55), 692–706. https://doi.org/10.24818/EA/2020/55/692
Paltrinieri, A., Dreassi, A., Migliavacca, M., & Piserà, S. (2020). Islamic finance development and banking ESG scores: Evidence from a cross-country analysis. Research in International Business and Finance, 51, 101100. https://doi.org/10.1016/j.ribaf.2019.101100
Platonova, E., Asutay, M., Dixon, R., & Mohammad, S. (2018). The impact of corporate social responsibility disclosure on financial performance: Evidence from the GCC Islamic banking sector. Journal of Business Ethics, 151(2), 451–471. https://doi.org/10.1007/s10551-016-3229-0
Rebai, S., Azaiez, M. N., & Saidane, D. (2016). A multi-attribute utility model for generating a sustainability index in the banking sector. Journal of Cleaner Production, 113, 835–849. https://doi.org/10.1016/j.jclepro.2015.10.129
Saïdane, D., & Abdallah, S. B. (2020). Sustainability and financial stability: Evidence from European banks. Economics Bulletin, 40(2), 1769–1780.
San-Jose, L., Retolaza, J. L., & Lamarque, E. (2018). The Social efficiency for sustainability: European cooperative banking analysis. Sustainability, 10(9), 3271. https://doi.org/10.3390/su10093271
Scholtens, B., & van’t Klooster, S. (2019). Sustainability and bank risk. Palgrave Communications, 5(1), 1–8. https://doi.org/10.1057/s41599-019-0315-9
Shah, A. A., Wu, D., & Korotkov, V. (2019). Are sustainable banks efficient and productive? A data envelopment analysis and the Malmquist productivity index analysis. Sustainability, 11(8), 2398. https://doi.org/10.3390/su11082398
Shen, C. H., Wu, M. W., Chen, T. H., & Fang, H. (2016). To engage or not to engage in corporate social responsibility: Empirical evidence from global banking sector. Economic Modelling, 55, 207–225. https://doi.org/10.1016/j.econmod.2016.02.007
Shen, Q. Y., Chang, B. B., Ma, R. F., & Tao, X. Y. (2021). How does interest rate liberalisation influence the profits of commercial banks? Evidence from China. Transformations in Business & Economics, 20(3), 278–299.
Simar, L., & Wilson, P. (2007). Estimation and inference in two-stage, semi-parametric models of production processes. Journal of Econometrics, 136(1), 31–64. https://doi.org/10.1016/j.jeconom.2005.07.009
Tan, Y., & Tsionas, M. G. (2022). Modelling sustainability efficiency in banking. International Journal of Finance & Economics, 27(3), 3754–3772. https://doi.org/10.1002/ijfe.2349
Tunowski, R. (2020). Sustainability of commercial banks supported by business intelligence system. Sustainability, 12(11), 4754. https://doi.org/10.3390/su12114754
United Nations. (1987). Report of the World Commission on environment and development: Our common future. http://www.ask-force.org/web/Sustainability/Brundtland-Our-Common-Future-1987-2008.pdf
Valls Martínez, M. D. C., Cruz Rambaud, S., & Parra Oller, I. M. (2020). Sustainable and conventional banking in Europe. PloS ONE, 15(2), e0229420. https://doi.org/10.1371/journal.pone.0229420
Weber, O. (2016). The sustainability performance of Chinese banks: Institutional impact. https://doi.org/10.2139/ssrn.2752439
Wu, M. W., Shen, C. H., & Chen, T. H. (2017). Application of multi-level matching between financial performance and corporate social responsibility in the banking industry. Review of Quantitative Finance and Accounting, 49(1), 29–63. https://doi.org/10.1007/s11156-016-0582-0
Yu, Y., Huang, J., & Shao, Y. (2019). The sustainability performance of Chinese banks: A new network data envelopment analysis approach and panel regression. Sustainability, 11(6), 1622. https://doi.org/10.3390/su11061622
Zimm, C., Sperling, F., & Busch, S. (2018). Identifying sustainability and knowledge gaps in socio-economic pathways vis-à-vis the Sustainable Development Goals. Economies, 6(2), 20. https://doi.org/10.3390/economies6020020