This is empirical study to examine the effect of risk and efficiency for credit departments of farmers associations in Taiwan. Because of have many financial institutions interaction competition in Taiwan. This greater competition, though driving firms to improve their efficiency, may also encourage them to orient their businesses towards activities, sectors, and or clients of higher risk. However, in spite of the importance of jointly evaluating efficiency and risk, the traditional measurements of efficiency do not take risk into account. Furthermore, the few studies that attempt to include risk do not separate the part of risk that is due to poor management (internal) from that which originates in the economic environment (external). This article apply sequential DEA procedure to break down the main indicator of banking risk provision for loan losses into internal and external components, in order subsequently to obtain measurements of efficiency adjusted for risk. By means of this procedure, not only is it possible to obtain measurements of efficiency appropriately adjusted for risk, but also to determine what proportion is due to bad risk management and what proportion is due to exogenous factors that are not attributable to the firms. Our major empirical findings are as follow: Basically, increase loan competition caused efficiency (CRS) to fall as a consequence of an increase in financial cost and decrease in revenues. This fact can be explained almost completely by a decrease in scale effect. The environment effect is also very stable and close to one. The risk effect is also stable in 1991-1996. But in 1997-2000 risk variables appear to have had more impact on efficiency due to adverse risk management circumstances.