Performance Evaluation of Banking Industry in Bangladesh Essay Example for Free

Performance valuation of Banking Indus strive in Bangladesh EssayBanking is an essential industry that affects the welf be of alone other industry and the economy as a whole. In fact, emersion and development of a country significantly dep peculiarity on the aim of growth and development attempted by the verifying orbit. there is a consensus regarding the positive piece compete by the financial firmament in promoting economic development (Gerschenkron, 1962 Patrick, 1966 Galbis, 1977). In Bangladesh, curseing sector has flourished a surge comp bed to other sectors of the economy. hardly the role of this get word sector in national development is not satisfactory. There is not besides an extremely strong capital stock but the rate of capital arrangement is excessively truly meager.The current rates of domestic savings and investments as a % of GDP are 20.2 and 24.4% respectively (Bangladesh Bank Annual Report 2004-05). In the past, the rate of savings and in vestment were much depress 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 (ERD). Under these Circumstances, internal resource mobilization is an urgent urgency for a self-reliant Bangladesh. Towarfareds this end, banking Industry may play a crucial role in mobilizing confederations savings and channeling the same into the soci in ally 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 mobilizing resources and allocating funds to emolumentable ends. The effectiveness of financial intermediation can affect economic growth. The financial intermediation affects the dismiss return to savings and gross return to investment. The p rominence of financial institutions for rapid economic growth is unanimous. The bank based view of financial system highlights the positive role of bank in mobilizing resource, identifying trusty projects, monitoring managers and managing risks. The role of banking institutions as intermediary between the investor and entrepreneur is of vital splendor in a growth country like Bangladesh.The evaluation of Banks instruction execution is a complex edge involving interactions between the environments, internal trading operations, and external activities. In performing this evaluation concerned authorities in the banking sector prior to independence felt for resource mobilization and using the same in the desired sectors. For this occasion all the mercantile banks were nationalized immediately after independence (Bhattacharjee, 1989). Development of private sector is essential to conduct with the challenges of globalization. But considering the socio-economic condition of Bangl adesh, extreme privatization, particularly in the banking sector, may not be desired.Because, even though, the government issue of private banks (local orthogonal) are change magnitude and the number of nationalized banks are decreasing, still the NCBs occupy a dominant ready 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. NCBs provide loans to productive and anteriority 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 affair 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 center on the exploit of the banking sector in general with a wider lance.As fina ncial 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 mobilizing resources and allocating funds to realizeable 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 mobilizing 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 the report card 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 troubles suc cess in allocating the sources of the firms capital to productive use and is foc utilise in the in the market time value of the firms capital. Performance may be defined as the accomplishment of the goals which are taken into consideration. The word instruction execution may be the synonym of efficiency in the context of business phenomenon. legion(predicate) scholars opined that effect of a firm may be considered as the term managerial performance. An evaluation of performance indicates to what extent an enterprise achieves its target. Evaluation is a judgment worth of aboutthing and like all judicial matters, it calls for justice, faithfulness 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 primer.Performance evaluation is an essential tool of management. It is applicable both in seeking answer to discordant questions to be asked ab come forward area of ac tivities in which performance might be alterd. The main purpose of performance evaluation is to assist in decision on two levels i.e. at a lower level. It can 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 closely the long term deployment of resources and target for achievement. Thus it can be verbalize 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 provide need the performance of banking sector to keep the economy live. In doing so, after the war of liberation, the banks operating Bangladesh(except those incorporated abroad) were nationalized. T hese 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 percolate the level of industrialization, poverty alleviation and human development.In a sense, healthy banks and healthy economies seem to go together. Therefore, performance of much(prenominal) organizations particularly operational efficiency, management soundness, productiveness, profitability and social profitability are of big(p) 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 type s of banks viz. Nationalized commercial-grade Banks(NCBs), Specialized banks(SBs), private Commercial Banks(PCBs), external Commercial Banks(FCBs) and Islamic Banks(IBs) differ in their motives. Different types of banks give priority to different stakeholders. So, performance summary as a whole can make the industry more creative and more supporting to achieve their organizational goal as well as can help the nation to block poverty and learn to lead prospective lives. Because , performance abbreviation 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 The broad objective of this proposal is to make a comprehensive analysis of growth, productiveness, profitability and performance of the banking industry in Bangladesh and to suggest measures for improving their performance. The specific objectives of the proposal are as follows To analyze and compare the g rowth 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 tell its profitable utilization through proper planning and 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 recap it is instal that a good number of researches were conducted in the field of performance evaluation in banking sector. But unfortunately, Performance psychoanalysis of Banking Industry in Bangladesh as a whole was not conducted. As such the literature review of the following articles, journals and research work com pelled 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 ideasAbedin, Roy and Mustafi(1989) in a study title, 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 deliberate 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 overseas banks they reported a sharp fall of productivity 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 (BB) 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 change magnitude the levels of the banks productivity. Cookson(1989) in his article titled, Productivity in the Banking Industry in 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 essence commercial banking system was stagnant. However, he took a partial approach for measuring productivity of the banks. In no way it reflected the total productivity scenario of the banking sector.Shakoor(1989) s paper on Measurement of Profitability in Commercial Banks in Bangladesh investigated the nature of produc tivity of four nationalized commercial banks(NCBs) during 1972-86 and that of five private commercial banks (PCBs) during 1983-86. The paper focused on just about selected indicators of general productivity and profitability, such as deposits, advances, income, spread, expenditure and so on per employee and per wooden leg. He used some statistical measures such as averages, standard deviation and coefficient of variations both NCBs and PCBs. The other statistical measures like, trend, correlation, throwback analysis etc. were not used by the author. He observed that the productivity of the NCBs 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 NCBs during the hitch 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. Bhattacharjee and Saha(1989) in their join eff0rt titled, An Evalu ation of Performance of NCBs In Bangladesh tried to measure the performance of NCBs for th1973-1987. They analyzed the performance of NCBs 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 mobilization (time deposit), branch expansion. (number of branches) and employment generation (c) divide 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. discover means and standard deviations of selected measures in NCBs , the authors reported that the NCBs could maintain the rising trends. They mentioned that in spite of disinvestment of two NCBs and growing importance attached to the development of private banking, the NCBs still played a dominant role in the banking sector. They hoped that achievement of the NCB sector may further be enhanced if due care is taken to improve the existing planning and monitoring system of relative operational performance aspects of thee banks.Abedin(1990) in his book titled Commercial Banking in Bangladesh A Role of commercial Study of Disparities of Regional and Sectoral Growth Trends(1846-1986), examined the role of commercial banks under the private ownership(1846-1970) in increasing regional and sectoral 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 pe rspective the author tried to critically examine the growth trends of banking facilities in Bangladesh for the expiration from 1846 to 1986. This study analysed the impacts of nationalization of commercial banks on different regions and sectors of Bangladesh economy after the independence of the country. The author identified some factors influencing credit deployment such as legal requirements of cash reserve, political pressure on the bank executive director etc.There are some other important factors, which should not be overlooked. Such as, pauperization 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 answerable for this(page 260). To discuss about limitations it can be said that, within the scope of a hit 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.Chowdhury(1990) in his dissertation titled An Evaluation of the Performance of Commercial Banks in Bangladesh assessed the overall ploughshare of the commercial banks in the financial development of Bangladesh. He analyzed the trend of commercial banks branch expansion, deposit mobilization and deployment of credit for the result 1972-86. The productivity and profitability aspects of the Nationalised Commercial Banks (NCBs) and Private Commercial Banks(PCBs) 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 financial development and the contribution of commercial banks t owards 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 responsible for the uneven trends in profits and profitability.Like any other study , the study had also some shortcomings. The convey denationalization and privatization period 1983-86 (four years) was too short in comparison to the pre denationalization or nationalized period 1972-1982 (11 years). The period considered (1983-1986 i.e. four years)for the comparative analysis between the performance of NCBs and PCBs was very ea rly to mature. Since the study measurable 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 vindicate 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.Moniruzzaman and Rahman(1991) made a comparative study of pre and post denationalization periods in the article titled, Profitability Performance of Denationalized Banks- A Comparative Study of the Pre and Post denationalisation Periods. They Observed that the profitability performance of Uttora Bank Limited and Rupali Bank Limited became unsatisfactory after denationalization. But in the case of Pubali Bank Limited, they observed a Decreasing trend before denationalization and increasing t rend 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 denationalized banks (Uttora, and Rupali Bank limted) 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 branches, number if employees etc. So the study was very limited and incomplete.