branch performance. branch types rural branches urban branches large branches medium branches small...

BRANCH PERFORMANCE

Branch Types

• Rural Branches• Urban Branches• Large Branches• Medium Branches• Small Branches

Branch Banking

• Branch banking leads to more stable banking systems by enabling banks to better diversify their assets and widen their depositor base.

• Branch banking induces competition. – Competition forces marginally profitable banks to

change either through merger or voluntary liquidation. – When these weaker banks close, the overall stability

of banking system improves through consolidation.

• Branch banking stabilizes banking systems by reducing their vulnerability to local economic shocks

Economic Factors Affecting Banking Activity

• Average employment growth

• Average population growth

• Average per capita income

• Average number of branches

• Average population per branch

Benchmarking Efficiency of Bank Branches

• Operational efficiency model

• Quality efficiency model

• Profitability efficiency model

Operational Efficiency Model

• Operational efficiency model identifies branches that are group leaders and serve as yardsticks to guide the improvement of performance of inefficient branches

– Managerial performance– Clerical performance– Management of computer terminals– Working space effectiveness– Number of current personal accounts– Number of savings accounts– Number of foreign currency current accounts– Number of credit applications– Output time

Operational Efficiency of a Branch

Quality Efficiency Model

• Service quality as perceived by branch personnel

• Service quality as perceived by branch customers

Perceived Dimensions of Service Quality

• Reliability - Ability to perform the services accurately and

dependably.

• Responsiveness – Willingness to help customers and

provide prompt service

• Assurance – Knowledge and courtesy of employees and

their ability to convey trust and confidence

• Empathy – Caring, individualized attention provided to

customers

• Tangibles – Appearance of physical facilities, personnel and

communication.

Objective and Perceived Measures of Quality

Profitability Efficiency Model

• Consumable Resources– Clerical personnel– Supervisor personnel– Computer terminals– Working space

• Revenue Generating Resources– Advances– Deposits– Commissions– Number of credit application accounts– Number of current personal accounts– Number of savings accounts– Number of foreign currency accounts– Number of inter-branch transactions

Profitability Efficiency Model

Service Quality and Profit Performance

Drivers of Branch Performance

• Profit and growth are stimulated primarily by customer loyalty

• Loyalty is a direct result of customer satisfaction• Satisfaction is largely influenced by the value of services

provided to customers • Value is created by satisfied, loyal and productive

employees;• Employee satisfaction results primarily from high-quality

support services and policies that enable employees to deliver results to customers

Data Envelopment Analysis

• Data from a single bank in a small and tightly regulated economy

• Data Envelopment Analysis (DEA) – Used for measuring efficiency– Several decision making units are mapped – Mapping of inputs with respect to outputs – Uses linear programming formulations to fit the model– Branch units on the data envelopment by the model

are efficient– Inefficient units can be projected onto the efficient

frontier either by reducing their inputs or increasing their outputs

– Virtual units that are close to the real ones but are on the efficient frontier (for the inefficient units)

DEA Example

Inputs Branch A Branch B Branch C

Managerial personnel 1 1 1

Clerical personnel 3 1 2

Computer terminals 2 1 2

Work space (Sq. m) 200 50 300

Current accounts 300 100 400

Savings account 800 200 500

Credit applications 150 50 200

Branch Quality

Outputs Branch A Branch B Branch C

Personal (Scores) 70 75 60

Computer (usage %) 40 30 45

Working spare (comfort score) 90 80 60

Credit application process time (days) 6 5 2

Service quality 60 58.75 61.25

Branch Profitability

Outputs Branch A Branch B Branch C

Revenue generation (%) 20 10 40

Deposit mobilization per employee 700 800 500

Fee income (%) 12 14 18

Interbranch transactions (number) 4000 3000 7000

Operational Efficiency and Profitability

Quality and Operational Efficiency

Service Quality and Profitability

Relative Efficiency