The Effect of Business Model on Financial Performance of Banking Companies in ASEAN and MENA

Niken Yulia Astuti

Gatot Nazir Ahmad

Ari Warokka

This research is expected to determine the influence of business models on financial performance as measured by market power. This research involves conventional banking in the ASEAN and MENA regions which have available data for the period 2010 to 2019 to avoid the influence of the Global Financial Crisis and the Covid 19 Pandemic. This research uses Panel Data analysis techniques, which is a combination of time series data and cross section data. In measuring banking competition, researchers use the Lerner Index. The Lerner Index is an indicator of the level of market power that holds a strong position in measuring banking competition, the higher the Lerner Index value, the greater the bank's power in controlling the market, resulting in lower levels of banking competition. The results of this research indicate that there is a positive influence between the Business Model and Market Power both in the ASEAN region and in the MENA region. This suggests that choosing the right business model can generate sustainable competitive advantages and higher financial performance for banks that adopt it.

Keywords: business model conventional banking financial performance lerner index market power

Al-Habashneh, A. K., Khatatbeh, I. N., & Alzubi, K. M. (2023). The impact of income diversification on the stability of listed Jordanian commercial banks during the COVID-19 pandemic. Banks and Bank Systems, 18(3), 35-48.

Al Tamimi, H. A. H., Duqi, A., Kanas, A., & D. Zervopoulos, P. (2022). Directional distance function DEA estimators for evaluating efficiency gains from possible mergers and acquisitions. Journal of the Operational Research Society, 73(6), 1-18.

Altunbas, Y., Gambacorta, L., & Marques-Ibanez, D. (2012). Do Bank Characteristics Influence The Effect Of Monetary Policy On Bank Risk?, Macroprudential Research Network, 117(1), 1-10.

Amidu, M., & Wolfe, S. (2013). Does bank competition and diversification lead to greater stability? Evidence from emerging markets. Review of Development Finance, 3(3), 152-166.

Basuki, A. T., & Prawoto, N. (2019). Analisis Regresi dalam Penelitian Ekonomi dan Bisnis (Ketiga ed.). Raja Grafindo Persada.

Beck, T., De Jonghe, O., & Schepens, G. (2013). Bank competition and stability: Cross-country heterogeneity. Journal of Financial Intermediation, 22(2), 218-244.

Ben Khediri, K., & Ben-Khedhiri, H. (2009). Determinants of Islamic bank profitability in the MENA region. International Journal of Monetary Economics and Finance, 2(3), 409-426.

Berger, A. N., Klapper, L. F., & Turk-Ariss, R. (2009). Bank Competition and Financial Stability. Journal of Financial Services Research, 35(2), 99-118.

Bhattacharyya, D., Dietz, M., Edlich, A., Höll, R., Mehta, A., Weintraub, B., & Windhagen, E. (2023). Global Banking Annual Review 2023: The Great Banking Transition. McKinsey, 1-48.

Bikker, J. A., & Vervliet, T. M. (2018). Bank profitability and risk‐taking under low interest rates. International Journal of Finance & Economics, 23(1), 3-18.

Chaffai, M., & Coccorese, P. (2023). Banking market power and its determinants: New insights from MENA countries. Emerging Markets Review, 55.

Church, J. R., & Ware, R. (2000). Industrial Organization: A Strategic Approach. Irwin McGraw-Hill.

Claessens, S., & Laeven, L. (2004). What Drives Bank Competition? Some International Evidence. Journal of Money, Credit, and Banking, 36(3), 563-583.

Clark, E., Radić, N., & Sharipova, A. (2017). Bank Competition and Stability in the CIS markets. Journal of International Financial Markets, Institutions & Money, 54, 190-203.

Creswell, J. W., Hanson, W. E., Plano Clark, V. L., & Morales, A. (2007). Qualitative Research Designs: Selection and Implementation. The Counseling Psychologist, 35(2), 236-264.

Demirguc¨-Kunt, A., & Huizinga, H. (2010). Bank activity and funding strategies: The impact on risk and returns. Journal of Financial Economics, 98(3), 629-650.

Dietz, M., Kincses, A., Seshadrinathan, A., & Yang, D. (2022). Global Banking Annual Review 2022: Banking on A Sustainable Path. McKinsey & Company.

Feldman, R. J., & Schmidt, J. (1999). Noninterest income: A potential for profits, risk reduction and some exaggerated claims. Fedgazette, Federal Reserve Bank of Minneapolis, 11.

Fu, X., Lin, Y., & Molyneux, P. (2014). Bank competition and financial stability in Asia Pacific. Journal of Banking & Finance, 38, 64-77.

Ghozali, I. (2021). Aplikasi Analisis Multivariate dengan Program IBM SPSS 26 (10th ed.). Semarang: Badan Penerbit Universitas Diponegoro.

Harmanu, A. (2018). Pengaruh Pendapatan Non Bunga (Non-Interest Income) Terhadap Kinerja Perbankan (Return On Equity) Pada Bank Buku 4 (Periode Tahun 2015-2017). Jurnal Ilmiah, 6(2), 1-13.

Hassan, M. K., & Aliyu, S. (2017). A Contemporary Survey of Islamic Banking Literature. Journal of Financial Stability, 34, 12-43.

Jogiyanto, H. (2010). Teori Portofolio dan Analisis Investasi (7th ed.). BPFE.

Köhler, M. (2014). Which banks are more risky? The impact of business models on bank stability. Journal of Financial Stability, 18, 1-18.

Lee, C.-C., Hsieh, M.-F., & Yang, S.-J. (2014). The relationship between revenue diversification and bank performance: Do financial structures and financial reforms matter?. Japan and the World Economy, 29, 18-35.

Lerner, A. P. (1934). The Concept of Monopoly and the Measurement of Monopoly Power. The Review of Economic Studies, 1(3), 157-175.

Lubis, A. F. (2012). Market Power Perbankan Indonesia. Buletin Ekonomi Moneter dan Perbankan, 14(3), 235-255.

Mărăcine, V., Voican, O., & Scarlat, E. (2020). The Digital Transformation and Disruption in Business Models of the Banks under the Impact of FinTech and BigTech. Proceedings of the 14th International Conference on Business Excellence 2020, 14(1), 294-305.

Mergaerts, F., & Vennet, R. V. (2015). Business models and bank performance: A long-term perspective. Journal of Financial Stability, 22, 1-49.

Mollah, S., Hassan, M. K., Al Farooque, O., & Mobarek, A. (2016). The governance, risk-taking, and performance of Islamic banks. Journal Finance Services Research, 51, 195-219.

Nguyen, M., Skully, M., & Perera, S. (2012). Bank market power and revenue diversification: Evidence from selected ASEAN countries. Journal of Asian Economics, 23(6), 688-700.

Patel, D. J. (2018). Impact Of Interest Rate Spread On Profitability Of Nationalized Banks And Private Banks. EPRA International Journal of Research and Development (IJRD), 3(9), 76-79.

Ramful, P. (2001). The Determinants Of Interest Rate Spread: Empirical Evidence On The Mauritian Banking Sector. Research Department, 1-20.

Sudrajad, O. Y., & Hübner, G. (2019). Empirical evidence on bank market power, business models, stability and performance in the emerging economies. Eurasian Business Review, 9(2), 213-245.

Sufian, F., & Mohamad Noor, M. A. N. (2009). The determinants of Islamic banks’ efficiency changes Empirical evidence from the MENA and Asian banking sectors. International Journal of Islamic and Middle Eastern Finance and Management, 2, 120-138.

von Solms, J., & Langerman, J. (2021). Digital technology adoption in a bank Treasury and performing a Digital Maturity Assessment. African Journal of Science, Technology, Innovation and Development, 14(1), 1-14.

Wang, X., Zeng, X., & Zhang, Z. (2014). The influence of the market power of Chinese commercial banks on efficiency and stability. China Finance Review International, 4(4), 307-325.

Wu, J., Guo, M., Chen, M., & Jeon, B. N. Market power and risk-taking of banks: Some semiparametric evidence from emerging economies. Emerging Markets Review, 41(C), 1-21.

Zott, C., & Amit, R. (2007). Business Model Design and the Performance of Entrepreneurial Firms. Organization Science, 18(2), 181-199.