In Bangladesh, banking sector has flourished a lot compared to other sectors of the economy. But the role of this key sector In national development is not satisfactory. There Is not only an extremely strong capital stock but the rate of capital formation Is also very meager. The current rates of domestic savings and investments as a % of GAP are 20. 2 and 24. 4% respectively (Bangladesh Bank Annual Report 2004-05). In the past, the rate of savings and Investment were much lower than the present rate.
Therefore, development plans of Bangladesh have been largely aid development. Between 1972-73 and 1981-82, aid has financed on an average of 75% of fixed Investments and the lions share of the development budget (RED). Under these Circumstances. Internal resource manipulation Is an urgent necessity for a self-reliant Bangladesh. Towards this end, banking Industry may play a crucial role in monopolizing community savings and channeling the same into the socially desirable sectors of the economy. As financial intermediaries, banks can play a crucial role in of most economies.
In the absence of effective functional securities market, the banking sector In Bangladesh takes the lead in monopolizing resources and allocating funds to profitable ends. The effectiveness of financial Intermediation can affect economic growth. The financial Intermediation affects the net return to savings and gross return to investment. The prominence of financial institutions for rapid economic growth is unanimous. The bank based view of financial system highlights the positive role of bank in monopolizing resource, identifying good projects, monitoring managers and managing risks.
The role of banking institutions as intermediary between the investor and entrepreneur Is of vital importance In a developing country like Bangladesh. The evaluation of Banks performance is a complex process involving interactions between the environments, internal operations, and external activities. In performing this evaluation concerned authorities in the banking sector prior to independence felt for resource manipulation and using the same In the desired sectors. For this reason all the commercial banks were nationalized Immediately to cope with the challenges of globalization.
But considering the socio-economic indention of Bangladesh, extreme prevarication, particularly in the banking sector, may not be desired. Because, even though, the number of private banks (local & foreign) are increasing and the number of nationalized banks are decreasing, still the NCSC occupy a dominant place in the banking sector of the country and play a pioneering role in capital formation, stimulating the level of industrialization, poverty alleviation and human development and in the overall economic development.
NCSC provide loans to productive and priority sectors both public and private covering agriculture, industry, trade and commerce. On the contrary, private banks mainly operate in towns and metropolitan cities and do business with noted entrepreneurs and with the affluent sections of the society; while foreign banks operate only in the cities and do business with the elite section of the society. Hence, this paper focused on the performance of the banking sector in general with a wider lance. As financial intermediaries, banks can play a crucial role in the most economies.
In the absence of effective functional securities market, the banking sector in Bangladesh takes the lead in monopolizing resources and allocating funds to profitable ands. The effectiveness of financial intermediation can affect economic growth. The financial intermediation affects the net return to savings and gross return to investment. The prominence of financial institutions for rapid economic growth is unanimous. The bank based view of financial system highlights the positive role of bank in monopolizing resource, identifying good projects, monitoring managers and managing risks.
The role of banking institutions as intermediary between the investor and entrepreneur is of vital importance for a developing country like Bangladesh. So he study is a demand of the time for better progress towards a developed future. 2. 0 Conceptual Background of the Study Performance indicates the degree of management’s success in allocating the sources of the firm’s capital to productive use and is focused in the in the market value of the firm’s capital. Performance may be defined as the accomplishment of the goals which are taken into consideration.
The word performance may be the synonym of efficiency in the context of business phenomenon. Many scholars opined that performance of a firm may be considered as the term managerial performance. An evaluation of performance indicates to what extent an enterprise achieves its target. Justice, equity and good conscious on the part of the person making the evaluation. It is to be considered an integral part of the management control on a continuous and systematic basis. Performance evaluation is an essential tool of management.
It is relevant both in seeking answer to various questions to be asked about area of activities in which performance might be improved. The main purpose of performance evaluation is to assist in decision on two levels I. E. At a lower level. It an be used to inform the day to day decision making of the management indicating how to maintain the efficiency and effectiveness of the banks in short term. At a higher level it can be used to inform the annual planning and budgeting process in which decisions are taken about the long term deployment of resources and target for achievement.
Thus it can be said that performance evaluation means a method under which the performance of an organization is evaluated differently. In Bangladesh performance of banking sector was considered with a very high note from the very beginning. It was felt that new born liberated country will need the reference of banking sector to keep the economy live. In doing so, after the war o liberation, the banks operating Bangladesh(except those incorporated abroad) were nationalized. These banks were merged and grouped for achieving the goal of government and people.
With the passage of time the number and types of bank expanded and the area of banking support is also enlarged vividly. For this, study becomes a necessity to find out loop holes as well as areas so that service can be expanded towards all necessary ends. For doing so banking industry plays a pivotal role in capital formation and stimulate the level of industrialization, poverty alleviation and human development. In a sense, healthy banks and healthy economies seem to go together.
Therefore, performance of such organizations particularly; operational efficiency, management soundness, productivity, profitability and social profitability are of great concern. An in-depth study to analyze the performances of the banking industry of Bangladesh by applying the most widely used indicators of bank performance could be worth while. The banking industry of Bangladesh is composed of five types of banks biz. Nationalized Commercial Banks(NCSC), Specialized banks(Sobs), private Commercial Banks(BPCS), Foreign
Commercial Banks(Fibs) and Islamic Banks(lbs.) differ in their motives. Different types of banks give priority to different stakeholders. So, performance analysis as a whole can make the industry more creative and more supportive to achieve their organizational goal as well as can help the nation to avoid poverty and learn to lead prospective lives. Because , performance analysis as a whole will bring out all loop holes for back benchers in this sector and allow them with information to go ahead with prospective mentality. 3.
Objectives of the Study productivity, profitability and performance of the banking industry in Bangladesh and o suggest measures for improving their performance. The specific objectives of the proposal are as follows: ; To analyze and compare the growth trends of banking facilities/services and output of banking sector as an industry. ; To measure and compare the productivity trends of banking sector. ; To compare overall performance of the cross section of banks from various angles. ; To conduct an in-depth analysis of the causes of lower or higher levels of productivity and performance (if any) among all banks. To evaluate existing remittance disbursement system and direct its profitable utilization through proper planning ND action. ; To suggest the possible lines of actions to improve the performance of various categories of banks. 4. Justification of The Study 1. Literature Review From a detail literature review it is found that a good number of researches were conducted in the field of performance evaluation in banking sector. But unfortunately, Performance Analysis of Banking Industry in Bangladesh as a whole was not conducted.
As such the literature review of the following articles, Journals and research work compelled me to have a distinct idea that a research of having a complete picture of Banking industry is a demand of the time. As such my literature review found following ideas: Abiding, Roy and Mustang(1989) in a study titled, “A Preliminary Note on Measurement of Productivity in the Commercial Banks of Bangladesh,” mentioned that there was a steady growth of bank output during 1975-1988. The output was measured as the volume of working fund handled per employees.
There were variations in the levels of productivity of different types of banks. They also mentioned about a falling trend of productivity index of private banks with little variations during 1985-88. In case of Foreign banks they reported a sharp fall of radioactivity index from 100 in 1985 to 37 in 1986, then a rising trend. The limitations of his study were that he did not considered the social aspects of the Banks. The data on working fund were not comparable with any published data of Bangladesh Bank (B) due to using the end June and end December figures of every year.
The study neither attempts to analyze the causes of lower or higher productivity of banks nor strongly suggests the measures for increasing the levels of the banks productivity. Conks(1989) in his article titled, “Productivity in the Banking Industry n Bangladesh” stated that productivity in the banking industry is very difficult to estimate by using available data. He also said that the conceptual difficulties limit comparisons among the banks in Bangladesh. In this paper the author tried to give a proper definition of labor productivity in commercial banking.
He pointed out that the productivity of the total commercial banking system was stagnant. However, he took a partial approach for measuring productivity of the banks. In no way it reflected Shakers(1989) ‘s paper on “Measurement of Profitability in Commercial Banks in Bangladesh” investigated the nature of productivity of four nationalized commercial banks(NCSC) during 1972-86 and that of five private commercial banks (BPCS) during 1983-86. The paper focused on some selected indicators of general productivity and profitability, such as deposits, advances, income, spread, expenditure etc. Re employee and per branch. He used some statistical measures such as averages, standard deviation and coefficient of variations both NCSC and BPCS. The other statistical measures like, trend, correlation, regression analysis etc. Were not used by the author. He observed that the productivity of the NCSC in Bangladesh had an increasing trend during 1972-86 and the productivity of the selected private banks showed better situation when compared with that of NCSC during the period under study.
But, his study had limitations and in no way that reflected the total productivity trend of the commercial banking sector as a whole. Patriarchates and Shah(1989) in their Joint effort titled, “An Evaluation of Performance of NCSC In Bangladesh” tried to measure the performance of NCSC for 17th-1987. They analyzed the performance of NCSC on the basis of five sets of indicators. They are: (a) General business measures in terms of total business, deposit, advances, gross income and net profit; (b) Social profitability measures in terms of deposit manipulation (time deposit), branch expansion. Number of branches) and employment generation; (c) Branch Performance Measures in terms of profit per branch, deposit per branch, business per branch and gross income per branch; (d) Employee performance measures in terms of profit per employee, income per employee and business per employee; (e) Profitability measures in terms of rate of profit on equity, profit per unit of deposit and profit per unit of advances. The authors found upwards trends in almost all the performance measures. Besides, inter bank and intra bank variations in performance measures were also observed by them.
Observing ‘means’ and ‘standard deviations’ of selected measures in NCSC , the authors reported that the NCSC could maintain the rising trends. They mentioned that in spite of disinvestment of two NCSC and growing importance attached to the development of private banking, the NCSC still played a dominant role in the banking sector. They hoped that achievement of the NC sector may further be enhanced if uh care is taken to improve the existing planning and monitoring system of relative operational performance aspects of thee banks.
Abiding(1990) in his book titled “Commercial Banking in Bangladesh: A Role of commercial Study of Disparities of Regional and Sector’s Growth Trends(1846-1986),” examined the role of commercial banks under the private ownership(1846-1970) in increasing regional and sector’s disparities in rendering the banking services in Bangladesh. He also investigated the part played by the commercial banks under the public ownership(1971-1986) in mitigating any such disparities. In this perspective the author tried to critically examine the growth trends of banking facilities in Bangladesh for the period from 1846 to 1986.
This study analyses the impacts of nationalization of commercial banks on different regions and sectors of Bangladesh economy after the independence of as legal requirements of cash reserve, political pressure on the bank executive etc. There are some other important factors, which should not be overlooked. Such as, motivation factor of the bank executives, Job security, honesty etc. The study rightly identified that, regional economic disparities led to the growth of regional imbalances in the distribution of banking facilities. The political economy of the monetary policy and banking was also responsible for this(page 260).
To discuss about limitations it can be said that, within the scope of a single thesis, to deal with a large number of issues is neither possible nor desirable. The author admitted that many current issues of banking operations could not be analyzed in this dissertation. It would be more worthy and specific if some of the key issues were mentioned. Chowder(1990) in his dissertation titled “An Evaluation of the Performance of Commercial Banks in Bangladesh” assessed the overall contribution of the commercial banks in the financial development of Bangladesh.
He analyzed the trend of commercial banks branch expansion, deposit manipulation and deployment of credit for the period 1972-86. The productivity and profitability aspects of the Nationalized Commercial Banks (NCSC) and Private Commercial Banks(BPCS) for the period 1983-1986(covering a period of four years) were also examined in the dissertation. The study covered all commercial banks excluding foreign and Islamic banks and used secondary data. The study stated that the growth pattern of the uncial development and the contribution of commercial banks towards financial development in Bangladesh was not only uneven but also very slow.
The study observed that the growth and development of commercial banking in Bangladesh during 1972-86 was not satisfactory. The author observed that the trends of profits, profitability and productivity of the commercial banks, over the entire reference period, were characterized by uneven variations indicating unsystematic and unplanned business expansion of the commercial banks. The study identified that the frequent variations in the ‘burden’ of the commercial banks was mainly expansible for the uneven trends in profits and profitability. Like any other study , the study had also some shortcomings.
The post denationalization and prevarication period 1983-86 (four years) was too short in comparison to the pre denationalization or nationalized period 1972-1982 (1 1 years). The period considered (1983-1986 I. E. Four years)for the comparative analysis between the performance of NCSC and BPCS was very early to mature. Since the study measured the productivity and profitability performance using single measures such as ratio of net profit volume of working fund, ratio of total income to total expenditure and ratio of total income to manpower expenses, those measures had limits to Justify the results.
If some additional measures had been used, then the results might be more realistic. So this study has some limitations and inadequacies which are expected to be minimized in the present study. Normalization and Raman(1991) made a comparative study of pre and post denationalization periods Study of the Pre and Post Denationalization Periods. ” They Observed that the profitability performance of Tutors Bank Limited and Rapid Bank Limited became unsatisfactory after denationalization. But in the case of Bubal Bank Limited, they observed a Decreasing trend before denationalization and increasing trend after denationalization.
The limitations of the paper are that, they had taken into consideration a very short period of three years before and three years after denationalization of the two banks. They did not try to find out why profits of those denationalization banks (Tutors, and Rapid Bank limited) were falling. They used the variables like total expenses , total income, net income and total assets only. They ignored other important variables, such as deposits, advances, number of Bank ranches, number if employees etc. So the study was very limited and incomplete. Article titled, “A Decade of Private Banking in Bangladesh” tried to analyze the role and performance of BPCS. He showed the growth trends of capital and reserves, deposits, loans and advances, branch expansion, profitability, value of shares, and employment generation in the BPCS. Besides, he analyzed the quality of lending portfolio also. During the study period from 1983 to 1992 he found a satisfactory performance of the BPCS. He mentioned that about 30 percent of the advanced loans were adversely classified and some of the banks were failing to maintain adequate provision for the classified loans.
Chuddar and Shuddery(1993) in their article entitled “Performance of Private Commercial Banks Visa-Г-visa Banking Sector” the authors analyzed the performance of private commercial banks visa -a-visa banking sector as a whole. They covered the period 1972-92. They put emphasis on the basic functions of the commercial banks- financial intermediation, which includes manipulation of deposits and deployment of funds. Besides, the operational efficiency, which includes profitability and productivity of the commercial banks, were also considered.
The authors observed that the results of denationalization and prevarication in the banking sector in Bangladesh so far did not indicate clear cut improvement in the efficiency of the banking system. Moreover, the efficiency of the denationalization banks deteriorated in all respects during 1983-92. According to the authors, the profitability and productivity of the BPCS were 0. 75 percent and 1. 15 percent in 1992, where as for NCSC , the above two figures were 0. 30 percent and 1. 05 percent in 1992 .
They opined that the higher level of operative efficiency of BPCS could be termed as ‘better reference’ of BPCS than NCSC during 1983-92, because of the reason that the BPCS put less emphasis on the socially more desirable sectors. They mentioned that the prevarication and denationalization process of the NCSC was initiated to gradually withdraw them from socially desirable sectors in order to improve their profitability. They suggested that in stead of denationalization the existing NCSC immediately, Government should try to develop a mechanism so that both the allocation efficiency and operative efficiency of the NCSC could be improved.
The paper is not free from limitations. Methodological aspects and concepts framework were not properly highlighted. It would be more interesting and meaningful if some relevant charts Total’ and productivity by ratio ‘Ratio Between Income and expenditure’ only. There are so many other measures to calculate the different aspects of profitability and productivity, which were not considered in the study. Raman(1994) Raman in his article titled, “Trend of Employees’ Productivity in Commercial Banks in Bangladesh” tried to measure and compare the employees’ productivity of NCSC and BPCS during 1984-1990. He included Somali Bank, Grain
Bank, Kanata Bank and Rapid Bank Limited in the NC group and Bubal Bank Limited, Tutors Bank Limited, Arab-Bangladesh Bank Limited, FIG Bank Limited, National Bank Limited and United Commercial Bank Limited in the PC Group. He excluded all development banks , I. E. BIBLE, BLAB and BASIC from the study because of their different nature of working. He used different indicators to measure the employee’s productivity, such as amount of deposit, advance, net income, expenditure, working fund and expenditure etc. Per employee. The author used partial approach in his study. It would be more meaningful if total approach was applied.
He used the data without making any corrections for the inflation in prices. To get a bird’s eye view , no trend lines or values , and charts were presented in the article. Islam et al(1995) measured the performance of bank on the basis of three types of indicators: general business, resource productivity and social indicators. Through his work he wanted to evaluate the effectiveness of the commercial banks. Bunyan (1995) identified two broad groups of measures: General measures and relative measures. General indicators include deposit manipulation, total business, gross income and employment generation.
Relative measures of effectiveness include deposit per employee, deposit per branch, gross income per employee, gross income per branch, total business per employee and total business per branch. Chowder et al (1998) used three categories of performance measures biz. General Business Measures, Commercial Profitability Measures and Employee Efficiency Measures. He also identified general business measures in case of growth of deposit, advance and net profit. Kabuki and Morphed(2002) in his paper presented seven financial ratios that can be used in the banking sector.
They also mentioned return on assets, return on equity and net interest return on investment as the reparability measure of a bank. Rose(2002) The author indicated two broad groups of ratios to measure the performance of any bank biz. Profitability and risk. He also included return on equity capital, return on assets, net interest margin, net non- interest margin, net bank operating margin etc. 1. Utility From the review of literature it is revealed that knowledge gaps and inadequacies have existed in the field of performance analysis of banking industry in Bangladesh as a whole.
To improve the performance of various Banks in Bangladesh, this Industry. 2. Feasibility The above literature survey reveals that a small number of Journal articles were motivated to evaluate different aspects of performance of our banking sector in a scattered way. Some of the thesis’s were written on the performance evaluation of either public or private sectors banks separately. But no thesis or research was conducted to make a comparative study on the performance evaluation of banking industry as a whole.
No systematic and in depth study has yet been done to shed light on comparative picture of growth, productivity and profitability of the banking sector in Bangladesh, This study attempts to fill up some of the above gaps. In the context of present open market economy and globalization scenario, the role of banking sector is more emphasized. Bangladesh is a country of developing economy. So, for the development of growing economy banking industry must act in an integrated way to contribute positively in the development oriented drama.
So, their individual and comparative performance has to be evaluated with a view to more activate them in this development drama. It is expected that the findings of this study may be of great use to policy makers, planners, students, researchers and the bankers and those may help to formulate true action plans for the betterment of the banking sector in particular and the country in general. Against this backdrop, the need for a comprehensive, systematic and in-depth study on the performance analysis of banking industry in Bangladesh can hardly be over emphasized.
Scope and Limitations 3. Scope The scope of the study covers a brief review of the comparative growth trends of Banking facilities of various sectors commercial banks in Bangladesh covering the period from 2001-2007. The analysis includes the growth of bank branches, employees, deposit manipulation, loans and advances, coverage of population and areas, statutory reserve, liquidity ratios, assets, liabilities, capital reserves, profit, spread, burden, interest on deposits, and on advances etc.
It also analyses the changing patterns of income, expenditure, and net profits of Banking operations. The factors influencing income expenditure and net profits will also be analyzed in this study. The proposed study is not free from limitations. The limitations are: ; Its scope would be limited to the realm of schedule commercial banks of Bangladesh alone. The central bank, The Development Finance Institutions (Doffs), and Multinational and Foreign banks will be outside the scope of study. As a typical environment few cases may obstruct in finding out relevant data as various banks may try to refrain from providing accurate data/information. ; Research work is a very expensive and adventurous effort. Co-operation from concerned corner can expedite the effort and ensure achievement of better research goal. Again several constraints like time, resources, and manpower may restrict the researcher to depend mainly on the secondary data/information. So, like any other study this one may have to face some limitations.
