Chapter-1 costs in banking, and providing services and products

Chapter-1
Introduction

Efficient
and effective utilization of resources is the key objective of every bank. This
objective
has always been
important in banking, but a number of recent events are helping to lay greater
emphasis on banking
efficiency. Increasing competition for financial services, technological
innovation, and
banking consolidation, for example, are all focusing more attention on
controlling costs in
banking, and providing services and products efficiently. Increasing
competition from non- banking
institutions as well as banking institutions, expanding into new markets, is
putting strong pressure
on banks to improve their earnings and to control costs. Efficiency is clearly
a critical factor for
remaining competitive. A number of recent statistical studies have shown that
the most efficient banks
have substantial cost and competitive advantages over those with average or
below average efficiency.

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Efficiency of banks is now a very
significant issue. Nowadays the efficiency of banks has been studied in wide range
in the banking literature, as the banks have very crucial role in the economic
development of a country. For the country like Bangladesh the banks efficiency has
a great importance. The banking industry of Bangladesh comprises of four types
of scheduled banks; these are state owned, nationalized, specialized, private
and foreign banks. In the presently total of 57 banks are in operation in
Bangladesh, among these 6 are state owned, 2 are specialized, 32 banks are
conventional PCBs, 8 are Shariah based banks and the rest 9 are the foreign commercial
banks.

 

The ultimate focus of the study is to
measure the efficiency of the two core segments of the PCBs in Bangladesh.
These are how efficiently the banks control their cost and the efficiency level
of the earnings of private commercial banks in Bangladesh. Data Envelopment
Analysis is used as the tool to measure the efficiency.   

 

 

 

 

 

 

 

 

 

 

 

 

 

1.1
Statement of the Problem

The principal
problem of the study is dealing with the efficiencies in different segments of
banks. To find the
solution of the problem, the study will focus on two core segments of banks.
The study will have the focus on the cost and earning efficiency of private
commercial banks in Bangladesh.   

 

1.2 Scope of the study

To measure the efficiency of the
private commercial banks of Bangladesh the study is conducting to the 22 banks
are taken as the sample to represent the conventional private commercial banks
in Bangladesh. For measuring the efficiency some statistical tests have been conducted
according to the nature and objectives of the study. Relative financial ratios
are analyzed to measure the efficiency.

 

1.3 Objectives of the Study

The main objective of this study is
to measure and to analyze the Cost and Earning efficiency of private commercial
banks in Bangladesh and to give some recommendations to improve their
efficiency. To do this, the specific objectives are

1.     
To examine how efficient the cost and
the earnings of private commercial banks are, by examining the sample banks.

2.     
To draw conclusion for the population on
the basis of the efficiency result ofsample Banks.

3.     
To find the correlation between input
output variables.

 

1.4
Rational of the Study

From the very beginning of  business evolution in the history efficiency
is a very significant term. In every step of national economy and business
efficiency is very significant.  As the
banking sector has the major and crucial role in the economy of the country and
in the advancement of the national economy banking sector has great influence,
efficiency analysis of this sector is one of the principal task. So the report
has a great significance.

 

1.5 Limitations of the study

The study of this kind is generally
encountered with some limitations.

         
i.           
Unavailability related and accurate
information and data is a big problem.

       
ii.           
From among the 40 PCBs only 21 banks are
taken as the sample for the study.

     
iii.           
Accuracy of data cannot be assured since
mainly secondary data collected from Annual Reports of the sample banks,
various financial stability reports, Economic trends are used in this study.

     
iv.           
Time was an significant constraint. It was
difficult to organize the report in the simple manner within limited time frame.

However, repeated and sincere
efforts have been given to ensure the accuracy of the data used in this study.

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