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Free Finance Essay: Royal Bank of Scotland Crisis

1.INTRODUCTION

The need for banks and financial institutions to grow beyond their normal businesses of accepting deposits and providing loans, into global giants that are diverse and often engage in sophisticated practices has been embedded as the pure nature of capitalism and market liberalisation. In the most recent decade, most global economies and organizations enjoyed unprecedented growth on the back of trade liberalisation and increasing financial services sophistication.

The need for these organizations to grow led to unscrupulous practices such as risky loans, high bonuses and reckless investments, together with high leveraged practices, all of which have been recognised as the major reasons why these institutions were hugely exposed to the financial crisis. Banks were the most affected, primarily because they were one of the major starters. They engaged in risky lending to businesses and individuals, invested in securities backed by subprime assets, and expanded like they intended to take over the world – mostly with leveraged funding and customer deposits. If they had not invested so rigorously in these risky securities, a huge number of those banks that were bankrupted or needed government bailout would have still been standing. They had to write down huge consumer and business loans that were defaulted, and also write down on the value of collateralized debt obligations they had in their portfolio. This led to huge losses, and depletion of capital reserves that prompted the intervention of the government in a huge number of global banking businesses.

This essay therefore aims to analyse the effects of the economic crisis on RBS Group, parent company of Royal Bank of Scotland, and NatWest. The group’s financial, operating and investment activities would be analysed in this study, with the aim of establishing the reasons why they fell the way they did compared to other UK banks, what could have been done better to alleviate such heavy losses, and what they could do now to repay government shareholding, and renew customer and investor confidence.

A background of the bank’s operations and investment activities would be outlined in the following chapter, followed by an analysis of what went wrong, its effect, steps that have been taken to alleviate such effects. Then finally an analysis of the bank’s current state compared to its rivals, and the effects of macroeconomic and industrial factors on its current and future operations.

2.BACKGROUND – ROYAL BANK OF SCOTLAND

The Royal Bank of Scotland group is a British banking and insurance holding company based in Scotland, and operating in Europe, North America and Asia-Pacific. Its main subsidiaries include the Royal Bank of Scotland, NatWest, Ulster Bank In Ireland, Citizens bank in the US, RBS Coutts, Churchill Insurance, Direct Line and Privilege (RBS, 2009).

RBS currently provides banking, private banking, insurance and corporate finance solutions to over 40 million customers worldwide (25 million in the UK) and 1 million small businesses. In terms of Group market share, RBS Group is currently the second largest provider of current accounts to customers in the UK (Mintel, 2009). Prior to the 2008 sub-prime mortgage financial crisis, RBS was the world’s largest company by assets, fifth largest in the world by market capitalisation and 10th largest company in the world (Financial Times, 2009).

RBS was established in 1727, and now has 2,278 branches and 118 business centres in the UK alone (RBS, 2009). RBS’ revenue and PBT has grown consistently, up until 2007 where it recorded a record turnover and PBT of ?32.3 billion and ?9.9 billion respectively. However, following write-downs on recent acquisitions and losses suffered during financing activities, RBS posted the greatest ever loss by a British company of ?34.5 billion profit after tax in 2008 (RBS Financials, 2009).

3.ANALYSIS OF RECENT ACTIVITIES

RBS Group has grown over the years through a series of acquisition and expansion across several market places in the UK, US, Europe and Asia Pacific. The organization expanded into new markets and increased market share through organic growth and acquisition.

Its major US acquisitions were in 1998 and 2004 when the bank acquired Citizens Financial Group and Charter One Bank respectively (RBS, 2009). The bank also acquired NatWest on 11th of February 2000, when it was declared the winner of the hostile take over battle of the bank against Bank of Scotland. RBS also acquired a 10% stake in the Bank of China for ?1.7 billion in August 2005, in order to further its international expansion into Asia-Pacific markets (Gumbel, 2009).

These acquisition activities in no way resulted in any shortcoming on the bank, but they even catapulted it into one of the biggest companies in the world. They made RBS a major player in the US and Asia retail and corporate banking industry, and also enabled it to leverage back office operations across the whole group. RBS had strong financials (Illustrated in figure 1). The figures show that up until 2007, its total assets, revenue and operating profit had been increasing consistently mainly as a result of these growth activities. These figures illustrate that the company was very strong and thereby never warranted a financial collapse or a takeover by the UK government. Then what went wrong?

Similar to any other UK or International bank, RBS suffered impairment charges against bad loans made out to bankrupt companies such as the American conglomerate LyondellBassell (?1.5 billion), and also about ?1 billion tied down in assets in Icelandic banks and Lehman Brothers (RBS, 2009). According to the Financial Times (2009) the bank also made losses through its global banking and markets division that was responsible for investing in Bernard Madoff’s Ponzi scheme, US subprime market and also in Lehman brothers. These losses resulted in huge capital shortfalls within the bank and impairment charges of ?8,072 billion, but are still commonplace amongst other UK banks like Barclays and HSBC that made provisions of ?5,419 billion and ?24,937 billion respectively within that same year, but still made reasonable profits and paid dividends to shareholders (Reuters, 2010).

A vast majority of RBS’ shortcomings, huge loss and failure during the credit crisis can be attributed to its acquisition of ABN Amro. It is widely believed that RBS hugely overpaid for ABN Amro and did not get the better of the deal (Ram, 2007). In October 2007, RBS led a consortium with Belgian bank Fortis and Spanish bank Banco Santander to acquire the Dutch bank ABN Amro for ?49 billion after a failed bid from Barclays Plc. RBS claims its share of the ABN Amro acquisition was ?10 billion, which was paid for mostly with cash (Kennedy, 2009). The consortium that was made up of RBS, Santander and Fortis, carved up and parted with different divisions of the bank. While Santander made forth with ABN’s Brazilian business Banco Real, and its Italian business Anton Veneta; RBS made do with the bank’s wholesale and Investment banking division, which already had a huge number of risky assets and was most exposed to the subprime mortgage markets (Ram, 2007).

RBS (2009) claimed that the acquisition would have boosted the bank into one of the formidable banking entities in the world if it acquired the right asset classes and done its due diligence. However, Griffiths (2009) believed that its subsequent failure was as a result of the exposure of ABN Amro to subprime mortgages, and the fact that the bank in itself overpaid and therefore severely depleted its capital base. However, we believe that the bank’s implicit culture of growth through acquisition is what prompted the acquisition spree, and even if the chairman – Fred Goodwin – had been forewarned about the global crisis, he may have still gone ahead of the deal. The bank’s willingness to become the world’s largest bank, has therefore catapulted it into one of the world’s greatest bank failures.

4.WHAT HAPPENED?

RBS’ fate and the effects of the credit crisis on its operations did not really materialise when it began venturing on a range of capital raising and divestment activities. The company floated a ?12 billion 11-for-18 rights issue, the largest ever in the history of Banking; sold Angels Trains, its train leasing subsidiary for ?3.6 billion and a 50% stake in Tesco Personal Finance for ?950 million. All these activities were in order for the bank to shore up its capital reserves following the acquisition of ABN Amro (The Times, 2009; Duncan 2008). Hurdle (2010) stated that several investors where weary of the extent to which the bank was exposed to credit mark downs and risky assets, however since the financial results were not yet out and investors had no reason to be concerned about the state of the bank’s financials, the rights issue was fully subscribed.

However on the 13th of October 2008, HM Treasury announced plans to inject an initial ?20 billion of new capital into RBS. In return, the Treasury would have a say in how the company is run, cut bonuses handed out to bankers, protect customer deposits and also help protect these banks’ toxic assets (Gumbel, 2009). RBS then intended to raise a seconds right issue of ?20 billion from investors, which was shunned as investors only took up 0.24% of the shares being offered as they were being offered at 65.5p per share and the shares were already trading on the floor at 52.7 per share (Duncan, 2008). Shareholders were also highly concerned about the potential nationalisation or ownership of the bank by the government, which would have profited the customers, but not the investors and not even the taxpayers (Gumbel, 2009). This resulted in government taking up the ?15billion that they underwrote for the issue, after initially investing ?20 billion of taxpayer funds in the bank. On the 28th November 2008, RBS was 58% owned by the government after the unsuccessful rights issue.

The fact that the government now owned 58% of the bank led to investor resentment regarding the bank, as they feared that the government would interfere in the bank’s operations and therefore prevent business as usual. However, these feelings where nothing compared to the earnings announcement on the 19th of January 2009 in which RBS expected to see write downs of ?20 billion following the purchase of ABN Amro and operating losses of over ?8 billion operating loss due to its exposure to the sub-prime market in the US. Shares fell 68.8% to 11p (Dunkley and Griffiths, 2009). The write downs associated with its acquisitions were due to the fact that the bank realised it overpaid during the acquisitions and the assets that had been paid for could never be sold for those prices, therefore confirming Ram’ (2007) allegations. Following the stock freefall and huge investor resentment, the government agreed to increase stake in RBS to 70% by converting ?5 billion in preference shares into normal shares thereby effectively controlling the company and eliminating the compulsory dividend payments of ?500 million regardless of whether the company made money or not.

Figure 2: RBS’s stock market prices from 30/01/07 – 28/01/10. Source: Reuters (2010).

Most other banks, as discussed earlier also suffered impairment charges with regards to credit and exposure to subprime mortgages, however they did not necessarily need government bailout, with the exception of Lloyds TSB that was encouraged to acquire HBOS. According to an article on BBC News (2009), the acquisition of ABN Amro was regarded as “worst and most ill-time takeover in history”. By the 20th of January 2009, a day after its earnings announcement, RBS’ value dropped to ?4.5 billion from ?75 billion two years earlier (Times online, 2009). It was now worth more than half the cash it paid in the deal to buy ABN Amro. RBS’ current market value is between ?18 –?20 billion (Reuters, 2010)

5.STEPS TAKEN TO ALLEVIATE

The effects of the financial crisis, especially on retail and commercial banks, really hampered consumer confidence. It was now the responsibility of the UK government to come up with schemes and plans in order to help cushion and bailout the banks, in order to prevent an overall mass resentment of the banking industry. The Asset Protection Scheme was therefore introduced in February 2008, which RBS committed to by signing up ?325 billion of toxic assets (RBS, 2009). The fact that the bank had that much toxic assets (5.5x its total shareholder equity and 13% of total assets), makes one wonder about the effectiveness of financial regulation in protecting the banks’ customers. If there was ample regulation that limited the amount of toxic assets that each bank could invest in, a much lesser percentage of toxicity could have been protected, thereby significantly affecting the UK Taxpayers (Slater and Ferreira-Marques, 2010). However Duke (2010) asserts that though these banks did engage in risky investment practices, the level of toxicity of these assets were not really known due to the sophistication of the financial system and collateralized debt securities. The scheme however helped to protect RBS’ assets against loss of future value. Signing up to the scheme effectively increased government shareholding to 84% of the bank, effectively part nationalising the bank, and leaving shareholders with only 16% shares in the company.

The organization now having learnt its lesson (under the thorough supervision from the UK government) has now opted to divest a range of assets such as its 4.26% stake in Bank of China ($1.6bn), and about one fifth of its businesses, in a bid to concentrate on its core markets (Murden, 2010). Recent developments include the 3Q 2009 loss of ?2.2 billion by RBS, particularly attributed to its sale of non-core assets; recent plans to divest early from the Asset Protection Scheme and also plans to sell off its Insurance assets, commodity trading business (RBS Sempra), about 318 bank branches (Guardian, 2009) and a ?1 billion pledge to UK manufacturing companies (RBS, 2009).

The following chapter would discuss the current effects of macro economic and industrial factors on the affairs within RBS.

6.MARKET AND INDUSTRY ANALYSIS

Following RBS’ record loss blunder last summer, the government stake within the organisations has consistently risen from 57% following a failed rights issue, to 70% following share conversion, and now 84% following its decision to join the Asset Protection Scheme, thereby effectively part nationalising one of the world’s largest banks. Shareholder equity has been diminished to as low as 16%, and the government now have total control on the activities within the organisation. That is a severe blow for an organisation whose main aim was to deliver profits and dividends to its shareholders, now it is managed like a welfare bank, selling off international assets, being less competitive and concentrating on its core market, in which the banking industry is already matured (Duke, 2010).

For all banks in developed, and even in developing countries, their affairs and future especially in the economic climate, is closely tied to government regulations. A proper illustration would be when President Obama announced plans to carve up banks, prevent them from owning hedge funds, private equity and proprietary trading desks. The shares of most banks that were engaged in these activities engaged in a freefall including that of RBS, which owns a joint venture RBS Sempra. The effect of this announcement would have meant that banks would have to carve out their investment banking divisions, which already accounts for a vast majority of profits in these organisations (Murden, 2010).

The US President’s announcement is the least of RBS’ problems. It is under intense regulatory pressure both from the EU and UK, to carve out its subsidiaries and make it much more slimmer and less competitive. It is said to be a punishment for the bank due to its risky practices that warranted government bailout. However, a decision for a bank to sell strategic business units and bank branches does not come likely. It would severely impact on turnover and profits, group shared services, and its market share in those core markets. RBS is being asked to sell RBS Sempra, a JV that made a profit of a profit of over $600m in 2008 (Murden, 2010). It is also being required to sell its Asian business, its Insurance business and up to 318 bank branches, in a bid to shore up its capital and repay the UK taxpayers. These businesses are thriving and were the core of RBS’ core strategy of leadership and expansion. The sales of these assets would severely reduce the bank’s assets, customer base and market share, and It may not be able to compete effectively in other markets apart from its traditional Retail and Corporate banking (Gumbel, 2009)

Also, with current public outcry concerning its bonus payout, there is bound to be more trouble for the organisation with regards to recruiting and retaining high performing staff. For instance, the public is concerned that the bank wants to pay out about ?1.5 billion in bonuses, amounting to an average of ?85,000 per staff, when competitors such as Barclays and JP Morgan paying more to their staffs (Patrick, 2010). Even if the bank were government owned, curbing and paying out minimal bonuses just like this would push staff away to competitors that are able to pay competitive packages and are not government controlled. According to Johnson (2009), the bank has already lost about 1,000 staff to competitors such as Barclays last year, and could lose even more staff if the row with the government over bonuses continues.

The organisation is also said to be suffering an increasing threat of credit markdowns, especially in its loans granted to Four Seasons, and also in Dubai’s real estate crisis (Slater and Ferrerira-Marques, 2010). These loan write downs reflect on the practices that the bank had always engaged in, and calls for stricter risk measures that ensures the bank faces lesser threat of write downs in the future. Apart from these measures and effects, the bank is also facing a customer crisis, in the way in which customer perceive the bank. If the bank continues to engage in credit markdowns and selling off its assets, customers may flee for more stable organisations that do not necessarily have that much government oversight. The same could be said for its employees and investors as well, with the government controlling all decisions.

There are also some legal issues affecting the organisation, as some of its shareholders are suing the bank over its right issue in 2008. They attest that they were not made fully aware of the risks associated in the ABN acquisition prior to their signing up for the shares. These investors paid 200p for RBS’ shares, only for it to drastically lose about 95% of its value months later when it announced its biggest annual loss (BBC News, 2009).

In terms of its industry analysis, the company is at a severe disadvantage when it comes to competitive rivalry. Due to its government ownership and uncertainty regarding its future, the company is struggling to compete for customers, employees and investors, against other formidable strong opponents like Santander, Barclays and HSBC. The bank has to sell its Insurance, private equity and over 300 branches. These would severely dent investor and employee confident and market share in a number of core markets. The bank also has to sell its transaction services business.

Based on figures in Table 1 below, RBS still accounts for 18% of all current accounts in the UK, with the lowest market cap of about ?21 billion (18th January 2009). Thereby illustrating that it is still able to compete effectively in the UK market, but to what levelIf the government keeps meddling in its affairs?

Current Account Market Share

Market Cap (? billion)

Total Assets (? billion)

PAT (? million)

Lloyds Banking Group

25%

?36

?1,195

?845

RBS Group

18%

?21

?2,508

-?38,513

HSBC First Direct

14%

?122

?1,736

?6,498

Santander

14%

N/A

N/A

N/A

Barclays

13%

?36

?2,320

?5,287

Table 1: Market share of top UK banks. Source: Reuters (2010)

The economic climate, and the government’s need for new competitors have severely reduced the barriers to entry into the banking system. It was recently announced that Blackstone Group and Virgin planned to open banks in the UK (BBC News, 2009). And guess whatThey plan to do so by hiring off staff and buying off bank branches that are being sold by RBS. The market capitalisations of most banks are less than 40% of what they were prior to the economic markdown. Even the ABN Amro that RBS bought for a large amount would not be worth that same fee now. Therefore there is a huge opportunity for start-up banks or even international banks to come into the market and compete effectively with existing players.

The major suppliers to the industry now are invariable the government who are providing insurance schemes and bailout funds to RBS. The government has enormous power and has been able to exercise it repeatedly in directing the actions of the organisation. Buyers, being bank customers also are weary, and the unwillingness of customers as a whole to join the bank can severely impair the bank’s ability to attract deposits and therefore make more money by lending it to other individuals and businesses. However, the banking industry is crucial in any economy, and is needed to provide credit to businesses, therefore there is no substitute product. This means that the government may continue to support the companies for as long as necessarily, so as to increase liquidity in the economy and provide businesses with adequate loans.

7.FUTURE PROSPECTS

Based on the information gathered and analysed in this study, it can be ascertained that RBS has a very bumpy road ahead. It has 84% government shareholding, and up until when it would be able to raise ?17,640 million (84% of current market cap – ?21bn), it would continue to have government oversight, and its operations, investment and financing activities would continue to be severely impeded. Its current aggressive asset sales that’s its current CEO – Stephen Hester is embarking on is more like a total opposite from the aggressive expansion strategy of former chairman – Fred Goodwin. As to whether RBS would return to profitability in the nearest future, we do not know. But the bank is still announcing credit write offs, so it doesn’t look too optimistic anytime soon.

Also, its strategy of winding down businesses, would severely reduce revenue and profitability figure in the short run, but with a competitive concentration on its core market, and a number of core brands, it could still compete effectively and drive growth locally in UK and EU. However, as forecasted by Norman (2009), that would not be for a few years to come. The bank is still going to find trouble attracting and retaining staff, and its customer base may not grow as well as it used to. However this is a great opportunity for the organization to draw up a new divestment strategy that would ensure it gets rid of regulatory oversight and returns back to profitability, shareholder influence and dividend payment in the nearest future.

8.CONCLUSION

RBS has shrunk in recent years, from a formidable force in global banking, to a part nationalised bank with intense regulatory oversight – that seems like punishment – from both the UK and EU regulators. The bank’s shortcomings occurred mainly as a result of its acquisition of ABN Amro, and not necessarily due to credit markdowns and subprime exposures. Its acquisition was been fuelled by a culture of aggressive growth and expansion in foreign markets, which delivered exceptional growth within those periods.

With the advent of the financial crisis, and near bank failure, came a 84% shareholding lifeline by the government, and with that came an intense regulatory oversight that has severely impeded the bank’s asset base, and even promoted a de-establishment of some core and noncore businesses. These factors have impeded the bank’s competitive strength with regards to current and prospective employees, shareholders and even customers, a disadvantage that may take some years to alleviate. It is therefore recommended that the bank drafts an achievable repayment plan over the coming years for it to be rid of government shareholding and return itself to competitiveness – albeit with a new lesson learnt.

9.REFERENCES

BBC NEWS (2009) RBS shares plunge on recession, www.bbc.co.uk, (accessed29/10/2009)

Duke, S. (2010) Pressure on Government to slash RBS payouts after global banking retreat on bonuses, www.dailymail.co.uk, accessed: 26/01/10

Duncan, H. (2008) RBS chiefs expect 95% to take up rights issue’,www.thisislondon.co.uk. (accessed 30/10/2009)

Financial TImes (2009) RBS et mon droit: HM deficits. ftalphaville,ft,com, (accessed 20/01/2009)

Griffiths, K. (2009) RBS suffers biggest loss in UK history, www.telegraph.co.uk, accessed: 26/01/10

Gumbel, P. (2009) Saving Britain’s Broken Bank, Fortune, 00158259, Vol 159 (10)

Howells, P. G., and Bain, K. (2005) The economics of money, banking and finance: a European text, Pearson Education, 602pp

Hurdle, J. (2010) Developer sues RBS unit for $8 billion, www.reuters.com, accessed: 25/01/10

Johnson, A. (2009) RBS suffers exodus in wake of bonus threats, The Express, www.allbusiness.com, accessed: 28/01/10

Kennedy, S. (2009) The curse of the ABN Amro acquisition, www.marketwatch.com,(accessed 31/10/2009)

Mintel (2009) – Current, Packaged and Premium Accounts – UK – June 2009 (accessed 20/01/2009)

Murden, T. (2010) RBS sale on track despite Obama ban, www.scotlandonsunday.scotsman.com, accessed: 27/01/10

Nayeri, F. (2009) British Bank RBS Gets Ready to Peddle Its Paintings, BusinessWeek online, 12/25/2009,

Norman, L. (2009) UK Defends Its Actions on Rescue of RBS, Wall Street Journal, www.online.wsj.com, accessed: 26/01/10

Patrick, M. (2010) RBS Branch Sale to Step Up A Notch As Possible Bidders Emerge, Dow Joines Newswires, www.online..wsj.com, accessed 28/01/10

Ram, V. (2007) What RBS Did Wrong, www.forbes.com. (accessed 30/10/2009)

Reuters (2010) Financial Statements for RBS, Lloyds TSB, HSBC, and Barclays, www.uk.reuters.com, accessed: 25/01/10

RBS (2010) RBS/NatWest Launch $1bn Fund in Support of UK Manufacturing Sector, www.rbs.com/media/news, accessed: 25/01/10

RBS (2009) What we do, www.rbs.com/about-rbs, (accessed 20/01/2009)

RBS Financials (2009) Company Announcements, www.investors.rbs.com, accessed: 25/01/10

Slater, S., and Ferreira-Marques, C. (2010) Hester refocuses RBS as assets go on block, www.reuters.com, accessed: 27/01/10

The Times (2009) Royal Bank of Scotland: the bank that sank, www.timesonline.co.uk (accessed 29/10/2009)

Times Online (2008) RBS shareholders shun ?15bn rights issue, www.timesonline.co.uk. (accessed 31/10/2009)

10. APPENDIX
2005

2006

2007

2008

Revenue (?bn)

?25,569

?28,002

?31,115

?31,413

Total Assets (?100 bn)

?7,768

?8,714

?19,005

?24,017

PAT (?bn)

?5,558

?6,497

?7,712

-?34,542

RBS 2005 – 2008 Financials

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Free Essays

SWOT Analysis and Porter’s 5 Forces analyses for Union Bank of Switzerland (UBS)

This paper looks at the Union Bank of Switzerland (UBS), one of the leading banks in the world and a very successful brand in the EU region. It examines the environment in which UBS operates while scrutinizing the attractiveness and competitiveness of the banking industry (Porter’s Five Forces analysis). The SWOT analysis is done to bring in to light the banks strengths and weaknesses and to expose any opportunities that it can capitalize on and the possible threats it may stumble upon in the process of further development.

Introduction

Organizations and businesses are in most cases under constant pressure to improve their levels of performance and productivity throughout their existence. To meet the set organizational objectives, various businesses have shifted towards expanding their portfolio and operations to other regions. WetFeet (2012) asserts that the success of a new or existing company is based on the efficiency the company exhibits in terms of market research, customer satisfaction and strategy formulation. With this in mind, this report shall set out to give a detailed analysis of various factors that have enabled UBS to remain profitable despite the unfavorable business environment experienced by the banking sector globally. This shall be achieved by performing a comprehensive Strength, weakness,Opportunity and Threat (SWOT) analysis and Porters Five forces analysis.

SWOT Analysis

Strengths

UBS is the second largest financial institution in Europe and the largest private wealth asset manager in the world. It has branches in 50 countries across the world. Some of its strengths include but are not limited to:

i) Geographically diversified operations UBS operates in fifty countries withinAmerica,Europeand Asia Pacific. Over 40% of the group’s annual revenues are derived from its branches abroad (UBS, 2012). This is indicative of the group’s global diversification in terms of operations. By diversifying its operations, UBS is shielded from economic downturns that may affect a particular economy.

ii)Strong market position UBS is the world’s largest wealth manager and the second largest bank withinEuropein terms of market capitalization and profitability. In addition, it is the leading retail and commercial bank inSwitzerland. These among other market factors enable the group to gain a competitive advantage over its rivals in various markets by leveraging its leading position.

iii) Strong Capital Adequacy Ratio The group has a Tier 1 capital adequacy ratio of more than 11% as compared to that recorded by its rivals. In addition, this ratio exceeds the set global average of 8% (UBS, 2012). This is a desirable ratio since it shows the group’s ability to meet set goals whenever a crisis occurs.

Weaknesses

Despite its strengths, there are some weaknesses that threaten the success of UBS. They include the following:

i) Decrease in net income interest The net income interest of the group has been on a downward trend for the past few years. This is indicative of a decline in the profitability of the group’s assets, which earn interest. In addition, this also indicates that some operations are curbed by inefficiencies.

ii)Waning profits and returns Since 2006, the group has recorded significant decline in net profits. This is attributed to a fall in the interest margins and reduced revenues accrued from the cash equity business. Similarly, returns on average assets have declined below the industry’s average, which stands at 1.21%.

iii) Poor performance inSwitzerland Considering that Switzerland is the group’s home market, the poor performance recorded over the years could have an adverse impact on the overall financial performance of the financial institution in the long-run.

Opportunities

There are some emerging avenues through which UBS can further advance its interests and those of its clients. They include the following:

i) Lucrative asset management industry In 2010, the asset management industry grew by 7.8% globally (UBS, 2012). This was equivalent to $52, 706 billion. This figure is expected to rise to $71.6 trillion by the end of 2012 (Economist, 2012). By investing in this segment, UBS will be able to expand its profitability and operations.

ii)Growing investment banking industry The investment banking industry has been on an upward trend over the past decade. Considering that UBS has a division that contributes over 43% of its total revenue dedicated to this segment, it is likely to reap significant benefits if this opportunity is fully utilized.

Threats

i) Consolidation of the financial services industry While many financial institutions are merging so as to reduce individual risks and share the market, this is leading to the establishment of stronger competitors in this sector (Economist, 2012).

Porter’s 5 forces analysis

Level of competition

As mentioned earlier, competition in the financial sector is very stiff globally. This is further worsened by the consolidation of the financial industry, which leads to the creation of bigger and more diversified competitors. However, UBS has a dedicated research team and a large pool of resources that enable the group to innovatively devise better means of staying ahead of the game (UBS, 2012).

Threats of substitutes

To a large extent, there are no substitutes when it comes to financial services. This fact makes the threat of substitutes significantly low. However, UBS operates on a high margin regime, which can be substituted by low margin products and services offered by rival companies.

Threat of new entrants

The threat of new entrants is relatively low. This is mainly attributed to the fact significantly large amount of capital and resources are required to set up an institution that would actively threaten the progress or success of UBS.

Bargaining power of buyers

By globally diversifying its operations, UBS has a larger market. This means that there are more clients and UBS has to cater for their needs in order to maintain and expand its market base. Since UBS has established itself as a top notch investor, its client has a higher bargaining power (WetFeet, 2012).

Bargaining power of suppliers

The suppliers of UBS have a low bargaining power since they all want their product and services to be associated with UBS. By availing their products and services to UBS, suppliers are guaranteed that whatever they are offering will reach a large consumer base. As such, they cannot bargain effectively since they bank on the long-term returns that will emanate from such an association.

Value Chain Analysis

According to Financial Times (2012), the value chain analysis sets out to identify specific functions carried out by a company in order to create a competitive advantage over its rivals. Some of the recognized primary value chain activities include: Inbound logistics, Operations, Outbound logistics, Marketing and sales and Services (Van Bennekom & Goffin, 2010). according to WetFeet (2012), the support value chain activities in UBS bank relate to Human Resource Management (HRM), technological development and firm infrastructure among others.

Conclusion

The success of any organization relies on the leadership and management skills exhibited by the organization. UBS has succeeded over the years due to its ability to plan, lead, distribute and control its resources effectively. As such, no matter the prevailing economic situation, the group has diligently managed to maintain its professionalism, reputation and profitability at an acceptable level (Arnold, 2012). This paper set out to explore various factors that have contributed to UBS’s success. To that end, a SWOT and Porter’s five force analyses have been conducted to evaluate the performance, competitive advantage and organization of this company. While there is room for improvement, UBS should formulate strategies to deal with its threats and weaknesses if it wishes to survive the current market situation.

References

ABC News (2008). Buffet: US essentially in recession. 3 March 2008. www.acnews.go.com (Accessed 2nd/09/2012) Arnold, G. (2012). Corporate financial management. 3d. ed. Essex: Prentice Hall. BBC (2012). Darling signals economic slowdown. 8 March 2012. www.news.bbc.co.uk (Accessed 2nd/09/2012) Dess, G, Lumpkin, G. and Taylor, M. (2004). Strategic Management: Creating Competitive Advantages.London: McGraw Hill Professional, p. 75 Doyle, P. (2012). Marketing Management and Strategy 3d ed.,New York: Pearson Education. Financial Times (2012). Market data. Information on oil prices. 24 March 2012. www.ft.com (Accessed 2nd/09/2012) UBS. (2012). Important Legal Information. 8th May 2012. http://financialservicesinc.ubs.com. (Accessed 2nd/09/2012) UBS. (2012). Our Strategy. 16th July, 2012. http://www.ubs.com/global/strategy.html (Accessed 2nd/09/2012) WetFeet. (2012), UBS 2012. Insider guide, WETFEET, INC,London. World Bank. (2011). Location Decision of Foreign Banks and Competitive Advantage. London:World Bank Publications

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Free Essays

The britain money market and is for specially britain’s islamic bank

Introduction.

I aim, in my dissertation to establish a Islamic credit card model in the Britain money market and is for specially Britain’s Islamic bank. There is no Islamic credit card available till today in Britain, and the only Islamic’s financial institute is Islamic Bank Of Britain. My research basis Islamic credit card which defeats in the Middle East and in Malaysia’s money market. The most banks they who provides such card in Asia act according to the deferred payment to know that they (to the inah bay) were discovered later the achievement has the dispute, disguises with to oppose Islamic completely law concept (Shariah). About, the Shariah related mostly bank has their policy formulation own Shariah in Asia to obey the court, but I know the question am at the same time mostly the Shariah committee to am in the same subject question harmful viewpoint. Provides by these Asian Bank these, but is all explanations to according to Holy Bible Koran is not suitable fore-mentioned by from the “Middle East Banker”.

when the Persian Gulf States Bank has visits new plans Muslim to believe and to provide them the credit card. Their method is very attractively to principal and granter or the guarantee based on the system. My financial model will simultaneously carry out the religion and financial anticipated two. Perhaps this model also has loads impracticability’ s as for is, because perhaps by Britain’s Islamic’s bank’s use or they are I knew needs complex procedure.

Aim

I planed about Construction of Islamic credit card the finance model and specially for s money market. Goal in somebody’ Followed; the s heel is the academic lecture core goal.

1. Discovers credit card ‘ According to Islamic legal (Shariah) s function about payment style.

2. In British appraisal credit card market, and may Muslim use these cards.

3. Provides credit card ‘ s reliability and in Islamic market revelation function.

4. Anything about in Islamic credit card ‘ Use; These s suitable model existence concept in credit card ‘ Use aspect; Discovered that the latent Islamic principle’s s function credit card is?

What Is Credit Card.

The credit card possibly is defined to arrive invariable compensation card that to propose may to purchase cardholder’s credit specific quantity which and pay the flowered amount.

Outstanding widespread balanced, in is assigned in the time is may pay, or the interest will cause on surplus balanced. (Paxon and five, 1998)

History of Credit Card.

The credit card system’s first type is developed in the US. Later in 20 centuries at the beginning, will use in the metal plate to the Western Alliance and other financial institute recording the customer detail and the account. The Flatbush State bank introduced its monthly allowance account bank accountholders in 1947. In 1951, the Franklin State bank was issues credit card’s first financial institute to other bank customer. (Lindsey 1980). the diners club issued in 1950 the first modern credit card, and was called the travel and the entertainment (T & E) card. The US express followed the visitor who ate meal to club and to provide in had the credit period characteristic between the expense and the payment for the credit card 1958, but did not have the partial payments facility. (Wonglimpiyarat 2005) the national credit card first developed and allows it to stretch across Earth’s other banks in 1966 from the American Bank. Will become all things as for the result rival by later to result in the card between the bank and the main charge name which will provide is joined. (Frazer 1985)

The Credit Card In Britain.

Barclays issued in 1966 the first credit card in the agreement later by the American Bank. Barclays imports all facilities and the structure in Britain revises the American Bank operation. (Wonglompiyarat 2005)

Credit Card System.

The visa, the switch and Master manage under the four directions plan. These all transactions through the plan involvement are four main parties;

Holder of the card, through the use of card, pays the payment,
The card publisher, provides the card to the user, and runs the trading account,
The retail merchant, sells the goods or the service back-spacing promise for the payment.
Merchant acting as a purchasing agent, the absorption retail merchant, obtains from the card publisher’s payment and the repayment gives the merchant. They have frequently with the merchant, but it’s Relations; does not force.

Islamic Bank Of Britain.

Islamic Bank Of Britain is only Shariah the obedient financial service authority (FSA) authorization financial institute in Britain. It started its operation and located at three British various cities and the branch in 2004 in London and the main office in the Birmingham. Other Islamic’s bank, I elect likely the bank goal also will provide the choice for the regular mechanics of banking through to avoid interest (Riba) and definitely to maintain the money only spends at the moral enterprise. At present the bank expands its product rapidly and serves two pair of current finances and the banking industry crisis, the Islam community in Britain, the availability non-interest credit card, in massive the growth Islamic’s mechanics of banking, chooses the choice modern mechanics of banking product and the service, the integrated Islamic financial concept is looking like Lloyds TSB modern bank neutral HSBC and is not voluntarily the high interest rate strong existence rule credit card. (www.islamic-bank.com)

Literature reviews.

In today’s society the credit card uses the achievement to pay money a basic way. Has to credit card’s various uses for example payment, the Credit facility, the cash advance easy way and as for the status symbol. Presented the payment proposition money value way compared with Islamic credit card and the conventional credit card, has various questions which a lower penalty spends, provides free bonus year after year, a fancier look and the proposition expense gives up. (Ma’ Sum total Billah 2001). Islam permission use credit card, because it does not incur the interest, and at the same time it does not violate Shariah any rule. (Ahamad and lake huron 2002). Whether I did know the credit card service only pays the main amount as for the user to add on operates and the overhead charge credit card, the financial entry is permitted, because it does not involve any kind in the Islam the element benefit which forbids. (in el Azura 2006). The use to pays money other way credit card’s advantage for the purchase, the cost effectiveness, the security and the world acceptability is easy to use. (Mohammad 2003).

Justification.

In the Middle East and Malaysia the method which discussed, anticipated financial model and gift payment method and religious belief flaxen cloth. The research possibly completes the explanation, but is may be the description possibly takes the bank with it to this domain research union important work.

Hypothesis.

The hypothesis has the limited research in the region Islamic credit card in Britain. (2007) the Shah pale research which and the discovery conducts has in the human limited aware about Islamic credit card. Mohd (2008) has identified influence Islamic credit card usage several factors for them. Had has developed following three hypotheses;

H1: Technical and the function service’s quality has to immediate influence Islamic credit card user.

H2: The religion has positive influence to the usage of Islamic credit card.

H3: The culture is directly affects Islamic credit card’s choice, the usage and satisfaction.

Research Methodology

The research methodology based on secondary data heavily. My research may use to the bank website in the Middle East and Southeast Asia and various origin together for example article, the research, the journal and the book. Other origins and insure London including on-line Islamic’s institute mechanics of banking, the Middle East banker magazine library Islamic finance (www.maktabonline.com), journal and complete other on-line resources. Because appears self-confidently in the promiscuous method has the research qualitative and the quantitative method mix. Except that beside further studies may be appears to the possibility to it with the current research findings.

Scope.

Core goal, if the research is the development to the financial model Islamic credit card Britain’s Islamic bank. Bank possibly for theirs credit card research applications research at that time credit card in theirs stock list, but its long waiting. The report will also highlight the key question for example in massive the general manner, the belief and the perception about the non-interest Islamic product and the service option and the usage. The report is willing in the modern day mechanics of banking also to show the convention mechanics of banking system choice and Islamic financial concept integration, and, when result trend toward mechanics of banking Islamic way.

Limitations.

Limits all hates diligently, the research has the loading limit. First it is limited Islamic the credit card and Britain’s Islamic bank. Next, the sample will be small, and will not provide to the population overall picture. It will concentrate mainly signs in upon arrival at work a broader picture in the merchant, because of it’ True s stemming from found individual the control use Islamic financial organ. Also the will did not think that perhaps the religious responder and it neglects to the Islamic financial service Islam user’s great proportion.

Conclusion.

What the conclusion Islamic Bank of Britanavoids establishing likely is the regular mechanics of banking provides chooses other Islamic bank interest (Riba) and definitely maintains the money only spends at the moral enterprise. Two pair of current finances and banking industry crisis, the Islam community in Britain, is not the availability strong existence non-interest credit card, to chose the modern mechanics of banking voluntarily in massive, Islamic financial concept integrated choice in has looked like HSBC in the modern bank, and a higher interest rate in the regular credit card, there was in the non-interest giant hidden growth potential sum.

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Barclays Bank believes that university students are an extremely valuable segmentation for business banking markets.

Introduction

Barclays Bank believes that university students are an extremely valuable segmentation for business banking markets, but the business of banking services is intensely competitive. In order to Barclays Bank attract more university student customers and to keep them in a long term, Barclays requires understanding the target market, what are universities students in the UK “needs and wants”. By describing the research process, the objectives of this market research will be notified. Following with the research questions and research design and method details will be formed. In addition, this research proposal is helping Barclays to increase its market share, and using market research to ensure Barclays provide the right product and services to the UK students target market.

I. Research Objectives

The main objective of this research proposal for Barclays Bank is to achieve the target which can provide the right products or services to university students in the UK and understand what are their “needs and wants” for bank account. Otherwise, we will add value propositions to attract more students for Barclays and keep these customers over time.

This has divided into the following objectives:

To understand the reason that students choose Barclays as their first bank account.
To investigate what feature would be considered when university students start a new bank account.
To inspect the property for Barclays banking services can attract new university students.
To increase university student account market.
To ensure the graduate students will continue obtain their bank account.

Research Process

According to Kumar (2005), a well managed severe, systematic, reliable, demonstrable, experimental, and critical is substantial research. In the next parts, it will describe the following research process for Barclays Bank.

Kumar (2005) has defined those eight steps for process of research, which is shown in Figure 1:

The following research will be chosen some parts for the proposal.

Figure 1 Research Process (Kumar, 2005)

II. Research Questions

Defined the Research Questions

According to Saunder et al. (2007) research design questions are related for many aspects:

? What intrigues me?

? Why am I doing it(Is it a contribution to knowledge?)

? What models, frameworks, etc?

? How am I going to collect data?

Research Questions for this Proposal

In this research, the title “Barclays Bank and targeting University Students” is being chosen the object of research and analysis. Otherwise, the questions are to understand student customers’ needs and wants. By using questions can get information that can utilise on market decision. There are four main research questions that can be developed and easily to understand this research objective.

Which bank is your first account
What bank features would attract university students
What bank services would customers need
What reason would affect customers to continue their account

III. Methodology

Grinnell (1993) has pointed out that the word “research” can define as ‘a structured inquiry that utilises acceptable scientific methodology to solve problems and creates new knowledge that is generally applicable’. Methodology sections will separate into two factors which are research philosophy and research method.

Research Philosophy

In research philosophy area, the research methods are discussed ontology and epistemology commonly. According the theory, both of methods are related to philosophical perspectives.

? Ontological perspective: The researchers can discover the essence of knowledge which exists in the world (Snape & Spencer, 2003).

? Epistemological perspective: The perspective is to discuss what knowledge can be believed (Bryman & Bell, 2007).

Research Philosophy for this Proposal

For this research, it utilises the epistemological aim to help the proposal to find out the right services, which may provide Barclays Banks to attract more university students. In addition, to understand the purchased behaviour by students, it may use EKB model on research survey to realise Barclay’s customers.

? EKB model: Engel et al. defined EKB model in 1978. EKB model will be the method for survey, and it can help to realise customers buying behaviour on decision-making. Engel et al. (2001), defined five steps that consumers decided to purchase the products, which are shown in Figure 2. These steps are showing the process of purchase behaviour by customers.

Figure 2 EKB five steps (Engel et al. 2001)

Research Method

In order to find out the value propositions for Barclays Bank, the main two research methods which are qualitative research method and quantitative research method will be considered in this proposal. Quantitative and qualitative research methods are the two ways usually use in the research area.

? Quantitative research method: This method is to collect quantifiable data and make it from objective views to produce the final results (Bryman & Bell, 2007).

? Qualitative research method: This method is focus on understand and describe peoples’ perspectives to create a logical outcome (Snape & Spencer, 2003).

Creswell (2003) point out that how to choose a research method in the analysis research, which is based on the target audiences or past experiences.

In addition, customers’ behaviour may affect their purchase decision. According to Engel, Kollat and Blackwell theory, EKB model is the basis of decision-making process for customer behaviour, and this process is referred to the actual consumers’ cognitive thinking when they purchase products. That is to say, EKB model is one of important elements to understand what customers’ thinking when they have decision-making situations.

Research Method in this Proposal

?Quantitative research method was identified to be more suitable for this research.

? Quantitative questioning will be used in the proposal. All quantitative questions will be shown in Appendix.

? Using EKB model in questionnaires and it will be shown in Appendix as well.

? Likert scale will be one of the parts in the questionnaires, Likert scale will be used in most of questionnaires. The typical five levels for Likert item are: Strongly disagree, disagree, neither agree nor disagree, agree, strongly agree.

IV. Research Design

Defined Five Research Design

There are five kinds of research design different purposes such as,

? Experimental design: This main concept of design is to analysis of qualitative or quantitative research which can examine the differences and form the foundation (Bryman & Bell, 2007).

? Cross-sectional design: This design is usually used in quantitative research (Kumar, 2005).

? Longitudinal design: Longitudinal design is a study to determine the amount of changes (Bryman & Bell, 2007).

? Case study design: Only single instance will be studied in the most case, and details related to that case will be collected. This model is suitable for qualitative research (Bryman & Bell, 2007).

? Comparative design: The research can be seen as the comparative design which has consisted of more than one case and to compare or evaluate the differences or similarities (Bryman & Bell, 2007).

Research Design for this Proposal

As for Barclay’s research, the aim is to add value propositions that can utilise in marketing decision. To consider of this research design, this research is to find out the customers behaviour for university students in the UK and to the collect a certain number of different information is needed to support for this research.

This research would follow case study and collection data in order to have a deeper understanding of the impact on value propositions from the research, obtaining the appropriate strategy by the UK university students’ requirements. Moreover, the EKB model and Likert scale discussed previously will be the fundamental theories to analyse the survey data.

V.Data Collection Design

Defined the way of Data Collection

According to Kumar (2005), data collection can be use in observations, interviews, and questionnaires these possible ways. The advantages of interviews are that when researchers are helpless to fulfill participants, researchers still can see specific information from interviewees, and interviewees can describe “history” which is suitable to the research case of topic to wider and deeper understanding (Creswell, 2003). In addition, researchers can be more flexible by asking questions which is comparing with interviews questionnaires (Bryman & Bell, 2007).

For research, the direction we need to see is the students’ consideration when they opening a new account. Qualitative research strategy in interview is too unstructured than in the quantitative research design. Researchers can an unstructured interview, which is more like a general chatting and more similar to having conversations with interviewees; researchers have to make a discussion guide with which has listed questions to understand (Bryman & Bell, 2007).

Data Collection Design in this proposal

The collection of the information is to be the first step of data collection. The data focus on the bank services and marketing decision. In addition, there are three methods that will be use to collect the require data.

? First approach :Face-to face

? Second approach :Telephone

? Third approach :Mail by post or email

However, using three methods are too complicated to this research; Table 1 is shown the compare results.

Compare Mail by postTelephoneFace-to-face
BudgetLowLowHigh
FlexibleNeed addressNeed phone numberGo to every university
Ask QuestionsLess questionsLess questionsMore questions
ValidityLowLowHigh
Non-response errorHighLowLow
Collect TimeLongShortLong

Table 1 Comparison ofthree kinds ofinvestigation methods.

After the compare evaluation, the mail survey approach is most appropriate to investigation of this study, these reasons are:

? This study research has budget consideration and restriction. Mail by post may be the lowest cost for the required questionnaires.

? The mail or email address from interviewee is easy to obtain.

? The questionnaires cannot be too long, but it is clear to see on mail.

? The validity by mail questionnaire is low.

? The mail questionnaires may have a high rate of non-response bias, but it can improve by send more mails. This action may help to reduce the rate of return non-response bias.

? The mail survey, takes a long time, but it may not influence the data results.

VI.Sampling

Sampling method

According to Patton (1990), the sampling method can be defined like ‘criterion sampling’ and the sampling is adopted in this research. It will find samples from criteria that receive research objectives. This sampling method also can ensure that the interviewees are supplied with complete information feedback that is required in the research (Patton, 1990).

Using the Sampling method in the qualitative research can be same as in quantitative research, for instance, random sampling method. Most of the samplings in qualitative researchers are with some purposes or criteria since sampling may affect the outcome significantly (Coyne, 1997). However, the sample size is required in qualitative research; the result is not larger than quantitative research. Researchers are using purposeful sampling to acquire sufficient knowledge interviewees who can present the related research topic, and help researchers to get wider and deeper view points from interviewees (Patton, 1990).

Sampling method used in this proposal

There are several sampling methods that can adopt in survey research. For research, random sampling will be chosen as the research method.

Following elements are the approaches for sampling:

? Element: Target market , all the UK university students.

? Population: Estimate5000 university students.

? Sampling Units: Collection of about 5000 survey elements from the population.

? Frame: A frame is a list of sampling units, same as 5000 sampling units.

? Select sampling methods: Random sampling.

Questionnaire Design in this proposal

SNAP is an assistance software tool that can create questionnaires.

This questionnaire will divide into three sections:

? First part: Personal information for Interviewees

University students in the UK or not.
Demand for the services.

? Second part: Interviewees’ personal bank.

First bank account.
Bank name, it is Barclays or not.

? Third part: Using EKB model to design questionnaire (Likert scale will be used).

Banking service satisfaction.
Bank Loyalty.

VII. Collection Data

Defined the method of data collection

The approaches to collect data have mention in front of part. That is, there are kind of ways can use in interviews. Interviews can be face-to-face, through telephone, or gather a lot of people to do the interview at the same time, which is also known as priority group (Creswell, 2003).

Data Collection in this proposal

? Collection data will follow the front part which decides to choose mail by post method to collect to necessary data.

? There are 5000 surveys will be sent by mails and emails.

(2500 mails by post, 2500 by emails)

? Following data collection time divided into two main stages. Collection time will be a month. First stage is to collect post mail will from 1st of June 2011 to 16th of June 2011. Although first stage is to collect post mail, email questionnaires feedback may return as the same time. Moreover, this period of time will continue collection data until 30th of June 2011. These stages are shown in Table 2.

Main stages

Time

Activity

First stage

1st June 2011- 16th June 2011Collect mail by post from interviewees

Second stage

1st June 2011- 30thJune 2011Collect email from interviewees

Table 2 Survey Collect Time

VIII. Data Analysis Process

Defined Data Analysis

In the qualitative research validity can be seen from three ways, which are descriptive validity, interpretive validity, and theoretical validity; or to consider from another aspect which can be classified as internal validity and external validity (Johnson, 1997).

? Validation of research

Validity is divided into three types, including content validity (Content Validity), criterion validity (Criterion Validity) and construct validity (Construct Validity).

Content validity: The primary purpose is to systematically check the appropriate of questionnaires; the questionnaires consider the samples and conduct appropriate proportion.
Criterion validity: It is outside test criterion with the assessment based on the correlation coefficient. Criterion validity refers to test data which has been found, also name as the statistical validity.
Construct validity: It refers to the test the measure theoretical construct or common quality level which observed variables and other theoretical consistency.

Data Analysis in this proposal

In this research, SPSS will be use in data analysis. As for the collect data, all questionnaires will be recorded and transcribed. The benefit of doing transcription is to help researchers who can get all details mentioned and to re-examine the data afterwards. The process of data will firstly help researchers to organised and it enabled to rethink and restructure the following analysis stages. At the same time the second stage data were collected and filed.
In this data collection, the clearer idea information between data and final findings will be formed, and it will shown data analysis to support results.

IX. Budget

With the research process, the budget will come with it. Higdon& Topp (2004) has pointed that, to reach the project objectives of timeline and methodology, the research proposal budget is intertwined with its development. Therefore, the detail of the budget will be notified. The budget of details required to expense to a complete itemized accounting list for the project (Higdon& Topp, 2004).

The budget table3 and 4 will displayed the total research fees.

Table 3 Worksheet

PersonnelRoleSalary/month
SmithPrinciple investigator?3000
BrownCo investigator?2750
TsouStatistician?2750

The research plan will spend one month.

Table 4 Equipment

PhaseDescriptionFee
Mail by post 2500 mail letters ?500.002500 stamps?1250.00
Email2500 email ?0

Data collection and analysis will consume a month as well.

Total fees ?10250.00

Timeline

DateActivity
21st May – 27th MayProposal Needed
28th May- 30th MaySurvey Development
1st June- 30th JuneData Collection
2nd July – 6th July Statistical Data
8th JulyFinal Report

X.Recommendations

Here are some reasons that our team should be chosen.

Our research team provides complete the research methodology and Data Collection.
The objects reflect the goals and orientations of the organisation.
Our agency wish to submit Barclays Bank with a compelling demonstration that has effectively represents.
The research results will reflect new projects and interests, and provide for both current clients and new in customers.
We can discuss this plan at your convenience.
Conclusions

The valuable segmentation for Barclays Bank business banking markets is university students, however, the business banking competitive. Barclays Bank wants to attract more student customers and keeps them in over time. This research proposal starts from research process. Quantitative research method is adopted and the data collection is through by mail interviews. Then, the secondary data is from journals, articles, books. Finding of the research will help Barclays to increase its market share, and the market research will ensure Barclays provide the right product and services to the UK students target market.

Bibliography

Bryman, A. and Bell, E. (2003) Business Research Methods, Oxford University Press.

Cresswell, J.W. (2009) Research Design: Qualitative, Quantitative, and Mixed Methods Approaches, 3rd ed. Sage Publications.

Coyne ,I .T. (1997 ) Sampling in qualitative research. Purposeful and theoretical sampling; merging or clear boundariesJournal of Advanced Nursing , 26(3),623–630.

Engel, J. F.,R. D. Blackwell & P. W. Miniard (2001 ) Consumer Behavior 9th ed. Fort Wort: Drvden Press.

Higdon,J.and Topp,R. (2004) How to Develop a Budget for a Research Proposal. Western Journal of Nursing Research, 26(8) 922-929.

Johnson ,R. B. (1997)Examining the validity structure of qualitative research. Research Library 118 (2) 282.

Kumar, R. (2005) Research Methodology: A Step-by-step Guide for Beginners. London: Sage Publications.

Patton, M. Q. (1990) Qualitative Evaluation and Research Methods, 2nd ed. Newbury Park, CA: Sage Publications.

Patton, M. Q. (1990). Qualitative evaluation and research methods ,2nd ed., Newbury Park, CA: Sage.

Saunders, Lewis & Thornhill (2007) Research Methods for Business Students, FT Prentice Hall

Snape, D. and Spencer, L. (2003) Qualitative Research Practice: A guide for Social Science Students and Researchers, London: Sage Publications.

Bibliography

Barclays Bank

Website http://www.barclays.co.uk/PersonalBanking/P1242557947640

Online Survey Software: SurveyMonkey

Website http://www.surveymonkey.com/MySurveys.aspx

Categories
Free Essays

Islamic credit in Britain financial market and especially for the Islamic bank of Britain.

Introduction

I m aiming in my dissertation to built a model of Islamic credit in Britain financial market and especially for the Islamic bank of Britain. There is no Islamic Credit Card present at the moment in the Britain and the only Islamic financial institute is Islamic Bank Of Britain. My study is based on the Islamic credit cards which are prevailing in the financial markets of Middle East and Malaysia. Most Banks in Asia they been offering such cards based on deferred payment knows them (bay to the inah) concept which is later on been discovered as controversial, mock and totally against the Islamic law (Shariah). As for as Shariah is concerned most of banks in Asia have their own Shariah compliance tribunals for decision-making but I know the problem was that at same Time most of Shariah boards to were adverse opinion on the same subject matter. These But all of solutions providing by these Asian banks to were not compatible according to the Holy Book Quran Said By the “Bankers from Middle East”.

While in the Gulf countries banks have new plans to access the Muslims believes and offering them credit card. Their approach is very seemlier to principal and granter, or guarantee based system. My financial model will carry out the religious and financial prospective both at the same Time. This model may also have loads impracticability’s as for as adoption by the Islamic Bank Of Britain or their might be I know much complex procedures required.

Aim

I am aiming to construct, regarding Britain’s Islamic bank Islamic credit card’s financial model and especially for Britain’s financial market.

The goal follows on somebody’s heels is the academic lecture core goal.

To finds out credit card’s effect according to Islamic law (Shariah) regarding the payment pattern.
In the British appraisal credit card market as well as may Muslims use these card.
May provide credit card’s reliability and the effect in the market revelation Islamic.
What regarding uses in Islamic credit card’s appropriate model existence these concept use aspect in credit card’s function finding out the latent Islamic principle credit card is

What Is Credit Card

The credit card possibly is defined to arrive invariable compensation card that to propose may to purchase cardholder’s credit specific quantity which and pay the flowered amount.

Outstanding widespread balanced, in is assigned in the time is may pay, or the interest will cause on surplus balanced. (Paxon and five, 1998)

History of Credit Card

The credit card system’s first type is developed in the US. Later in 20 centuries at the beginning, will use in the metal plate to the Western Alliance and other financial institute recording the customer detail and the account. The FlatbushState bank introduced its monthly allowance account bank accountholders in 1947. In 1951, the FranklinState bank was issues credit card’s first financial institute to other bank customer. (Lindsey 1980). the diners club issued in 1950 the first modern credit card, and was called the travel and the entertainment (T & E) card. The US express followed the visitor who ate meal to club and to provide in had the credit period characteristic between the expense and the payment for the credit card 1958, but did not have the partial payments facility. (Wonglimpiyarat 2005) the national credit card first developed and allows it to stretch across Earth’s other banks in 1966 from the American Bank. Will become all things as for the result rival by later to result in the card between the bank and the main charge name which will provide is joined. (Frazer 1985)

The Credit Card In Britain

Barclays issued in 1966 the first credit card in the agreement later by the American Bank. Barclays imports all facilities and the structure in Britain revises the American Bank operation. (Wonglompiyarat 2005)

Credit Card System

The visa, the switch and Master manage under the four directions plan. These all transactions through the plan involvement are four main parties;

Holder of the card, through the use of card, pays the payment,
The card publisher, provides the card to the user, and runs the trading account,
The retail merchant, sells the goods or the service back-spacing promise for the payment.
Merchant acting as a purchasing agent, the absorption retail merchant, obtains from the card publisher’s payment and the repayment gives the merchant. They have frequently with the merchant, but it’s Relations; does not force.

Islamic Bank Of Britain

Islamic Bank Of Britain is only Shariah the obedient financial service authority (FSA) authorization financial institute in Britain. It started its operation and located at three British various cities and the branch in 2004 in London and the main office in the Birmingham. Other Islamic’s bank, I elect likely the bank goal also will provide the choice for the regular mechanics of banking through to avoid interest (Riba) and definitely to maintain the money only spends at the moral enterprise. At present the bank expands its product rapidly and serves two pair of current finances and the banking industry crisis, the Islam community in Britain, the availability non-interest credit card, in massive the growth Islamic’s mechanics of banking, chooses the choice modern mechanics of banking product and the service, the integrated Islamic financial concept is looking like Lloyds TSB modern bank neutral HSBC and is not voluntarily the high interest rate strong existence rule credit card. (www.islamic-bank.com)

Literature reviews

In today’s society the credit card uses the achievement to pay money a basic way. Has to credit card’s various uses for example payment, the Credit facility, the cash advance easy way and as for the status symbol. Presented the payment proposition money value way compared with Islamic credit card and the conventional credit card, has various questions which a lower penalty spends, provides free bonus year after year, a fancier look and the proposition expense gives up. (Ma’ Sum total Billah 2001). Islam permission use credit card, because it does not incur the interest, and at the same time it does not violate Shariah any rule. (Ahamad and lake huron 2002). Whether I did know the credit card service only pays the main amount as for the user to add on operates and the overhead charge credit card, the financial entry is permitted, because it does not involve any kind in the Islam the element benefit which forbids. (in el Azura 2006). The use to pays money other way credit card’s advantage for the purchase, the cost effectiveness, the security and the world acceptability is easy to use. (Mohammad 2003).

Justification

In the Middle East and Malaysia the method which discussed, anticipated financial model and gift payment method and religious belief flaxen cloth. The research possibly completes the explanation, but is may be the description possibly takes the bank with it to this domain research union important work.

Hypothesis

The hypothesis has the limited research in the region Islamic credit card in Britain. (2007) the Shah pale research which and the discovery conducts has in the human limited aware about Islamic credit card. Mohd (2008) has identified influence Islamic credit card usage several factors for them. Had has developed following three hypotheses;

H1: Technical and the function service’s quality has to immediate influence Islamic credit card user.

H2: The religion has positive influence to the usage of Islamic credit card.

H3: The culture is directly affects Islamic credit card’s choice, the usage and satisfaction.

Research Methodology

The research methodology based on secondary data heavily. My research may use to the bank website in the Middle East and Southeast Asia and various origin together for example article, the research, the journal and the book. Other origins and insure London including on-line Islamic’s institute mechanics of banking, the Middle East banker magazine library Islamic finance (www.maktabonline.com), journal and complete other on-line resources. Because appears self-confidently in the promiscuous method has the research qualitative and the quantitative method mix. Except that beside further studies may be appears to the possibility to it with the current research findings.

Scope

Core goal, if the research is the development to the financial model Islamic credit card Britain’s Islamic bank. Bank possibly for theirs credit card research applications research at that time credit card in theirs stock list, but its long waiting. The report will also highlight the key question for example in massive the general manner, the belief and the perception about the non-interest Islamic product and the service option and the usage. The report is willing in the modern day mechanics of banking also to show the convention mechanics of banking system choice and Islamic financial concept integration, and, when result trend toward mechanics of banking Islamic way.

Limitations

Limits all hates diligently, the research has the loading limit. First it is limited Islamic the credit card and Britain’s Islamic bank. Next, the sample will be small, and will not provide to the population overall picture. It will concentrate mainly signs in upon arrival at work a broader picture in the merchant, because of it’ True s stemming from found individual the control use Islamic financial organ. Also the will did not think that perhaps the religious responder and it neglects to the Islamic financial service Islam user’s great proportion.

Conclusion

What the conclusion Islamic Bank of Britanavoids establishing likely is the regular mechanics of banking provides chooses other Islamic bank interest (Riba) and definitely maintains the money only spends at the moral enterprise. Two pair of current finances and banking industry crisis, the Islam community in Britain, is not the availability strong existence non-interest credit card, to chose the modern mechanics of banking voluntarily in massive, Islamic financial concept integrated choice in has looked like HSBC in the modern bank, and a higher interest rate in the regular credit card, there was in the non-interest giant hidden growth potential sum

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Risk Management Report: Saint Charles Bank

Executive Summary:

This report focuses upon the financial risk management of Saint Charles Bank. When analyzing the bank’s financial statements it is evident that the bank is in an adequate financial position without many evident financial threats. The bank has not majorly succumbed to operational and market risk but has a high rate of credit and liquidity risk in certain areas. However, when comparing the bank’s performance with Barclay’s Bank, it is evident that Barclay’s bank has also succumbed to the same types of risk and this may be common for banks who give loans and advances to other banks and customers. Thus, this report recommends that Saint Charles Bank adopt the same policy as Barclays Bank and adopt a rigorous credit rating system to manage its credit risk and reduce its level of short-term loans and advances to manage its liquidity amongst other recommendations.

Introduction:

After the completion of the year 2011, it is essential to analyze the financial statements of Saint Charles Bank and determine whether there are any financial risks that the bank may be potentially facing in the future. If there are certain risks that the bank is likely to face, it is best for the bank to devise an appropriate plan to mitigate against those risks. Thus, this risk management report will analyze the financial performance of Saint Charles Bank and then commence with an analysis of various risks including capital risk, operational risk, liquidity risk, and market risk of Saint Charles Bank from the years 2008 to 2011 respectively. The report will also aim to compare the financial performance of Barclays Bank with that of Saint Charles Bank in order to determine what areas Saint Charles Bank is comparatively strong in and what areas may be posing a potential threat in the future (McNeil, Frey, & Embrechts, 2010).

This report will begin with an analysis of the financial statements of Saint Charles Bank from the years 2008 to 2011 and then commence with an analysis of the different risks that the bank is facing including various forms of the bank’s credit risk followed by its liquidity risk. The report ill then conclude with a summary of the main findings of the report and brief recommendations regarding how the bank an mitigate against the perceived threats to its financial security (if any).

Financial Performance of Saint Charles Bank:

Saint Charles’ Bank’s operating income and profit statement from 2008-2011 shows progress over the years as the bank has been able to increase its net interest income steadily from 2008 to 2011. While the increase in net interest income from 2010 to 2011 was minimal as income rose from $7,387 million to $7,623, there was still improvement which eliminates concern for financial risk in this area. Similarly, the bank improved in the areas of net trading income, net fees and commissions income, and other operating income. As a result, the bank also had a higher operating income before impairment losses and taxation than previous years. The only area of concern was that the bank’s impairment losses on loans and advances to other credit risk provisions got higher in 2011 compared to the years 2008 to 2010 amounting to $2,000 million. However, the bank had less other losses from 2010 in 2011 was showed an improvement in the bank’s financial risk position. The bank showed an increase in earnings before taxation in 2011 compared to 2010 as earnings amounted to $5, 151 compared to previously being at $4,568.

Upon analysis of the bank’s balance sheet, it is evident that the bank’s cash and balances at the central banks has increased considerably from 2007 but has decreased to a substantial extent from 2010 at $24,161 million to $18, 131 million in 2011 which may jeopardize the bank’s liquidity position. The bank’s financial assets held at fair value amount to $22, 446 million from $ 15, 425 million-+ in 2010 which shows that the bank is investing more in financial assets than it previously was which may be a reason for its reduced cash balance. However, the bank has reduced its investment in derivative financial instruments from 2010 to 2011. A slight area of concern may exist in the fact that the bank has increased its loans and advances to banks and loans and advances to other customers as in 2010 , loans and advances to banks amounted to $46, 583 million and in 2011 it amounted to $50, 885 million. The increase in loans and advances to customers was greater as it was at $174,178 million in 2010 and increased to $198, 292 million in 2011. This may be an area of concern for the bank in the realms of increasing its credit risk. The bank’s investment securities have increased from 2010 to 2011 but the bank has decreased its other assets, current tax assets, and prepayments and accrued income. The bank has increased its asset value in the area of interests in associates, goodwill and intangible assets, property plant and equipment, and deferred tax assets. Overall, the bank’s total assets have increased over the years from 2008 to 2011 and amount to $436, 653 million.

Another slight area of concern when analyzing the bank’s financial position is that the bank’s liabilities have increased over the years in certain key areas which include deposits by banks, increase in customer accounts, debt securities in issue, current tax liabilities, deferred tax liabilities, provisions for liabilities and charges, and retirement benefit obligations. However, the bank’s liabilities have also decreased in a few areas which include financial liabilities held at fair value, derivative financial instruments, other liabilities, accruals and deferred income, and subordinated liabilities and other borrowed funds. The bank’s total liabilities at the end of 2011 was less than the total amount at the end of 2010 as it amounted to $408, 773 million in 2011compared to $ 412, 373 million in 2010. Another sign of the bank’s strong financial position is its increase in equity from the year 2008 to 2011 as the bank’s share capital increased from $948 million in 2010 to $1, 013 million in 2011 and the bank’s reserves also increased from $21, 192 in 2010 to $ 26, 327 in 2011. Similarly, the bank’s minority interests increased from $555 million to $ 580 million from the years 2010 to 2011. The bank’s total equity has also increased over the years and amounted to $27, 920 in 2011 compared to $ 22, 695 in 2010.

The bank’s financial position seems to be strong on the whole but there are a few key areas which may pose a concern for the bank’s risk management in the future. The bank’s deteriorating cash balances may pose as a concern for an increase in liquidity risk and the fact that the bank has increased loans to customers and other banks may pose as a concern for credit risk in the future. As the bank has diverted many of its assets from cash and other equivalents form to investments in financial securities and other assets, the bank has also increased its market risk to a certain degree (Andersen Bollerslev, T. Christoffersen, P. F & Diebold, 2012).

However, as the bank has a deteriorating amount of liabilities from year to year and an increasing amount of assets, the bank seems to be in a strong financial position presently and the implications of upcoming risks may not be as prominent or prevalent. The next section of this report will analyze the bank’s various risk levels individually and determine whether the bank is facing a serious threat to succumbing to any of the mentioned risks.

Operational, Credit, and Market Risks:

The most prominent risk that the bank is currently facing is credit risk as the bank’s risk-weighted assets holding a degree of credit risk are substantially higher than the bank’s regulatory capital requirement and amount to $173, 315 million in 2011 with a regulatory requirement of $13, 865 million, compared to $ 161, 276 million in 2010 with a regulatory requirement of $ 12, 902 million. This increase in credit risk can most likely to be allocated to the bank’s increase in loans to other banks and customers which also increases the risk that these banks and customers may default on their payments and may not be able to pay their loans back. The bank is also facing a certain degree of market risk although the market risk is not as severe as the credit risk as the bank’s regulatory capital requirement stands at $ 1,593 million and the bank’s risk-weighted assets amount to $ 19, 912. However, the bank’s market risk has substantially increased from 2010 as regulatory capital requirement amounted to 735 million while the bank’s risk-weighted assets amounted to $ 9, 205 million. This may be because the bank has increased its investment in financial assets which have increased the bank’s exposure to market risk (Cornett, McNutt, Strahan, & Tehranian, 2011).

Saint Charles Bank is also faced with a certain degree of operational risk as the regulatory capital requirement in 2011 is $1, 656 million and the bank holds risk-weighted assets amounting to $ 20, 696 while the bank’s regulatory capital requirement in 2010 was $1,467 million and the bank held risk-weighted assets amounting to $18, 340 million. However, the bank’s operational risk is still significantly less than the bank’s credit risk and may not pose as serious a threat to the bank as the bank’s credit risk may. Overall, the bank’s total risk level with inclusion of credit risk, market risk, and operational risk is greater in 2011 than 2010 and the bank’s risk-weighted assets have also considerably increased from $ 188, 821 million to $ 213, 923 million.

Barclay’s Bank also faces a certain degree of risks in each risk category which is evident from the bank’s risk profile. Barclay’s holds risk-weighted assets amounting to $ 283, 308 million which hold credit risk while the bank’s credit risk capital requirements amount to $ 22, 665 million. Barclay’s also holds a higher degree of market risk than Saint Charles Bank as the bank’s capital regulatory requirements amount to $5,756 million while the bank’s risk-weighted assets amount to $71, 951 million. Similar to Saint Charles Bank, Barclay’s operational risk seems to be the least as the bank’s capital regulatory requirements measure up to $ 2, 859 million and the bank’s risk-weighted assets amount to $ 35, 740 million.

The bank’s total credit risk has substantially decreased from 2010 as Barclay’s credit risk amounted to $304, 861 million in 2010 but has decreased in 2011 which shows that the bank may be controlling its level of credit risk adequately. Moreover, the credit risk of Barclay’s bank is significantly more than that of Saint Charles Bank. This may be attributed to the fact that Barclay’s holds more capital and has more customers than Saint Charles Bank which means that they offer more customers and financial institutions loans than Saint Charles Bank does. However, Barclays’ operational and market risk are more or less the same from 2010 to 2011 and have not shown significant changes. Hence, similar to Saint Charles Bank, Barclays also holds a significant amount of credit risk which means that the bank must mitigate against these risks in these future to prevent major defaults in loans (Barclays Pillar 3 Report, 2011).

Barclay’s Bank’s high credit risk rating can be attributed to the fact that the bank gives out substantial wholesale and retail loans and advances, and indulges in derivative contracts with various clients. Other reasons for the bank’s high credit risk rating are caused by the bank’s trading activities, debt securities, settlement balances, available for sale assets and reverse repurchase loans. However, the bank aims to manage these risks by establishing a framework of controls to ensure credit-risk taking is based on appropriate credit risk management principles, measuring and managing credit risk appropriately in each of the bank’s businesses, controlling and planning credit-risk taking with external stakeholder expectations and the avoidance of undesirable concentrations. The bank aims to monitor credit risk and appropriately follow the relevant controls set by central banks and the government, and ensures that all risk and reward objectives are met properly (Barclays Pillar 3 Report, 2011).

As there are differing rates of exposure to credit risk in various businesses or with various clients, it is important for the bank to determine where credit risk is the highest and to apply appropriate policies to curb and mitigate against this risk. It is evident from Exhibit 4.2 that credit risk is highest in short term loans and advances which are for a duration of 1 year or less as their credit risk exposure amounts to approximately 62.6%. It is evident that credit risk decreases as the maturity period of a loan or advance increases and the lowest credit risk exposure is for loans over five years. This trend was also seen in 2010 which means that it is a continuous trend showing that loans which have a longer maturity level are likely to default less than loans with shorter maturity periods. Moreover, it is evident that loans and advances given to institutions, corporate, and retail sectors are the heaviest defaulters, while loans and advances given to the retail sector are likely to default the most after a period of 5 years. However, corporate and institutions are likely to default more when the loan maturity period is of 1 year or less or when it is in the range of 1 to 5 years. It is important for the bank to devise an appropriate credit risk management strategy accordingly in order to decrease the chances of credit risk

Barclay’s Bank also faced a maximum amount of credit risk exposure from loans and advances to the corporate and retail sectors as they amounted to $3,227 million in 2011 for the corporate sector and $1, 571 million for the retail sector. However, Barclay’s Bank did not seem to have as much credit risk exposure from institutions as Saint Charles Bank had faced.

There are also different levels of credit risk exposure in different countries and it is thus essential for a bank to manage its credit risk appropriately, in order to prevent a high default rate in any country which would affect the bank’s financial risk overall. Saint Charles Bank is exposed to the highest credit risk exposure rate in Asia as that amounts to $257, 197 million in 2011 from $ 232, 202 million in 2010. This is followed by a high credit risk exposure rate in the USA, UK, and Europe, Middle East and South Asia, and the lowest credit risk exposure in Africa. This can be attributed to the fact that Saint Charles Bank does not provide customers in Africa with a large amount of loans and advances and does not necessarily have to be attributed to the reason that people in this geographical region do not default upon loans as frequently. However, the high credit risk exposure rate in Asia may be subject to the fact that the bank gives more loans and advances in Asia than in other regions and Asians are also probably higher defaulters than people living in other geographic regions.

The next section of this report will analyze the bank’s liquidity position in terms of the bank’s perceived liquidity risk and the implications of this.

Liquidity Risk:

Saint Charles Bank’s liquidity risk increased slightly from the year 2010 to 2011 which shows that the bank has not substantially increased its state of illiquidity. The assets that posed the highest degree of liquidity risk in 2011 included loans and advances to customers and investment securities. Followed by these categories of assets, the highest degree of liquidity risk existed in loans given to banks. In the year 2010, the total liquidity risk in 2010 amounted to $ 435, 068 million while the total liquidity risk in 2011 amounted to $ 436, 653 million in the company’s assets.

In the liability section, customer accounts held the highest value in posing a liquidity risk followed by deposits by banks, debt securities in issue, and other liabilities. The bank faces the highest amount of liquidity risk in the short-term and in the category of 3 months or less because liabilities exceed assets substantially in this time period and the net liquidity gap amounts to approximately -$150, 958. This trend was observed in the year 2010 as well as liabilities exceeded assets with a net liquidity gap of $-117, 591. All subsequent maturity levels showed a positive trend as assets exceeded liabilities and showed no problems in liquidity or an increase in liquidity risk. Thus, it is evident that the bank has to improve its short-term liquidity position in order to reduce its financial risk.

Analysis:

The bank’s financial position seems to be adequate and well-managed and the bank does not seem to be under major financial threats as the bank’s market risk and operational risk appear to be under control and are not cause for major concern for the bank. In comparison to Barclay’s bank, Saint Charles Bank is also performing adequately in the fields of operational and market risk. However, the bank’s performance has shown considerable concern in the realms of credit risk. This situation also holds true for Barclay’s Bank as well (Barclays Pillar 3 Report, 2011) and can thus be attributed to the fact that banks do hold an immense amount of credit risk when they give loans and advances to customers and other banks (Hermann, 2011). The bank holds the maximum amount of credit risk when offering loans to the retail sector, corporate sector, and institutions. Moreover, the bank holds the highest exposure to credit risk in the geographic region of Asia which means that the bank must focus upon this area more specifically when attempting to mitigate against credit risk. Thus, it is necessary for the bank to apply certain policies which will help the bank curb and mitigate against credit risks in these key areas of concern (Drehmann & Nikolaou, 2012).

Moreover, the bank does not show a high degree of concern in the area of liquidity risk. The bank has a substantial amount of assets to cover for its liabilities at most maturity levels but is suffering in terms of liquidity in the short term. The bank has a very high net liquidity gap in the category of 3 months or less in both the years 2010 to 2011. This may pose as a major area of concern to the bank if customers begin to demand their deposits back or the bank is in need of some cash quickly. It may also cause the bank to go temporarily bankrupt if it is unable to raise cash immediately (Hartmann, 2010).

Another major area of concern for the bank is the current financial scenario in the contemporary business environment in the years 2008-2011. As the number of bank defaulters have substantially increased and due to the global economic crisis, the whole business environment is in a major state of decline. This means that it is essential for the bank to review its policies adequately as many customers are likely to default in their bank loans and advances. Moreover, the economic crisis has hit certain areas harder than it has hit others, thus it is also essential for the bank to revise its policies in certain geographic regions in order to ensure that no particular area causes the bank immense financial concern (Brownless & Gallo, 2010). Moreover, as the bank’s short term liquidity position is in jeopardy, it is also essential for the bank to devise certain policies which will help it improve its short-term liquidity position and prevent the bank from experiencing problems in generating cash flow in the short run (Gillet, Hubner, & Plunus, 2010).

The next section of this report will recommend specific policies for the bank to use in order to improve its financial position.

Conclusion and Recommendations:

Saint Charles Bank must focus upon improving its credit risk and liquidity risk position in order to ensure that its financial performance is up to the mark. The first risk that the bank must mitigate against is the credit risk. Accordingly, Saint Charles Bank may follow the policy of Barclay’s Bank and adopt an adequate credit rating policy while anticipating and measuring credit risk of different customers and also different areas. Barclays Bank adopts a rigorous credit rating policy which assesses the degree of risk associated with providing loans and advances to various customers. The bank then allows these customers to be provided with loans and advances from the bank on the condition that they meet the bank’s strict requirements (Van Deventer, Imai & Mesler, 2013). Saint Charles Bank can improve its credit risk position by asking lower rating customers to provide extra collateral to make their loans secure. Moreover, they can also adopt a more rigorous rating policy in the areas of Asia, USA, UK, and Europe, and perhaps the Middle East as well. The bank may also reduce the number of loans it gives to the retail sector or reduce the maturity time of these loans in order to reduce the credit risk. The bank may increase the maturity time of loans given to other customers in order to improve the credit risk as it was found that shorter maturity times substantially increased the bank’s credit risk in other customer categories besides retail stores (Hoyt & Leinberg, 2011).

In order to improve its liquidity position in the short run, the bank can reduce its investment in long-term securities in order to ensure that it has enough cash available in the period of time of 3 months or less. The bank can decrease its level of investment securities and opt for keeping more cash deposits in the central bank. Moreover, offering less short-term loans may also improve the bank’s short-term liquidity level (Aebi, Samato, & Schmid, 2012).

Thus, this report concludes that Saint Charles Bank does not have a high degree of risks embedded in the bank’s financial performance and is performing adequately in comparison to its counterpart, Barclays Bank. The bank’s liquidity and credit risk may be areas of concern for the bank in the future but do not pose a great threat to the bank’s financial statements.

References

Aebi, V., Sabato, G., & Schmid, M. (2012). “Risk management, corporate governance, and bank performance in the financial crisis.”Journal of Banking & Finance. Vol. 36(12) pp. 3213-3226.
Andersen, T. G., Bollerslev, T., Christoffersen, P. F., & Diebold, F. X. (2012).Financial risk measurement for financial risk management(No. w18084). National Bureau of Economic Research.
Barclays Bank (2011) Barclay’s Pillar 3 Report.
Brownlees, C. T., & Gallo, G. M. (2010). “Comparison of volatility measures: a risk management perspective.”Journal of Financial Econometrics. Vol. 8(1) pp.29-56.
Cornett, M. M., McNutt, J. J., Strahan, P. E., & Tehranian, H. (2011). “Liquidity risk management and credit supply in the financial crisis.”Journal of Financial Economics. Vol. 101(2) pp. 297-312.
Cornett, M. M., McNutt, J. J., Strahan, P. E., & Tehranian, H. (2011). “Liquidity risk management and credit supply in the financial crisis.”Journal of Financial Economics. Vol. 101(2) pp.297-312.
Drehmann, M., & Nikolaou, K. (2012). “Funding liquidity risk: definition and measurement”. Journal of Banking & Finance.
Gillet, R., Hubner, G., & Plunus, S. (2010). “Operational risk and reputation in the financial industry.”Journal of banking & finance. Vol. 34(1) pp.224-235.
Hartmann, P. (2010). “Interaction of market and credit risk.”Journal of Banking & Finance. Vol. 34(4) pp. 697-702.
Herman, R. D. (2011).The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons.
Hoyt, R. E., & Liebenberg, A. P. (2011). “The value of enterprise risk management.”Journal of Risk and Insurance. 78(4) pp.795-822.
Jorion, P. (2010). Financial risk management handbook.Global Association of Risk Professionals.
McNeil, A. J., Frey, R., & Embrechts, P. (2010).Quantitative risk management: Concepts, Techniques, and Tools. Princeton University Press.
Van Deventer, D. R., Imai, K., & Mesler, M. (2013).Advanced financial risk management: tools and techniques for integrated credit risk and interest rate risk management. John Wiley & Sons
Glossary of Terms

Operational Risk: A risk incurred by an organization’s activities which may include risks associated with systems, people, and processes. These risks include fraud, legal risks, and environmental risks (Jorion, 2010).

Market Risk: The risk of financial losses arising from movements or changes in market prices. It includes equity risk, interest rate risk, currency risk, and commodity risk (Jorion, 2010).

Liquidity Risk: The risk that assets cannot be traded in quickly enough without preventing a loss to cover a company’s current liabilities (Jorion, 2010).

Credit Risk: The risk that a borrower will default on his/her payment in any manner (Jorion, 2010).

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Critical Assessment Of Risk Management In Nigerian Banking Industry: A Case Study Of Fidelity Bank Plc

Abstract

This proposal seeks to conducts a critical assessment of the risk management framework in Nigerian banking industry. A case study approach has been chosen for the proposed dissertation. While examining the overall banking sector, the study will devote particular focus to Fidelity bank in Nigeria as a case study. A review of literature on risk management in the banking environment is going to be conducted in order to provide the necessary background information for this study. The researcher also intends to combine both qualitative and quantitative methods of data collection in order to achieve triangulation. The data obtained will then be analyzed using simple percentages. In addition, chi – square (x2), a non-parametric statistic will be used to test the two hypothesis generated in the study.

Introduction

In the recent times, risk management has become a necessity. This is especially the case in banking which is a high risk business. The recent global financial crisis caused by the so called ‘house bubble’ in the US had adverse impacts on financial markets and institutions across the world (Awojobi et al. 2011). It triggered a capital management crisis across various commercial banks. Financial institutions suffered a severe shock in their capital and liquidity status and some had to close down their operations.

As a result of the crisis, Nigerian banking sector has suffered an historic retrogressive trend, both in capitalization and profitability (Abdullahi 2013). More recently in 2010, only 3 out of 24 banks in Nigeria reported having made profits. 8 banks were found to be in grave situation, adversely affected by liquidity and capitalization problems (Onaolapo 2012). The capital market has declined and banks have had to recapitalize in order to meet the regulatory directive (CBN 2010). The drama that has hit Nigeria’s banking sector has eroded public confidence with depositor funds experiencing a sharp decline of 41% in between 2007 and 2009.

On a lighter note, however, the Central Bank of Nigeria (CBN) moved in to rescue the situation which was quickly escalating, triggered by global events. The CBN had to inject N620bn of liquidity in order to stabilize the system and return confidence to the stock market which had already collapsed by 70% (CBN 2010). Further, the apex bank had to replace leadership in the 8 banks which had been adversely affected.

Problem statement

The core function of commercial banks is to manage risks and increase their returns to shareholders. The global meltdown has exposed the failure of banks to attend to their core business functions (CBK 2010). Had banks been attending to risk management, then there wouldn’t have been the flood on the US market of cheap short-term interest rate mortgages which resulted in mortgage crisis and subsequent downturn (Onyeka 2013). Although the CBN intervened in Nigeria to save a number of commercial banks that had been adversely hit and while there seems to be an improvement, risk management in most banks is still fundamentally no different today than it was prior to the credit crunch and recession (Onyeka 2013)

Credit risks remain an issue of great concern in Nigerian banking sector. Most of the commercial banks in Nigeria still do not have a framework for effectively managing risks. Despite some few notable improvements, following CBN interventions and subsequent reform measures; risk management practices still remain at a rudimentary stage (Garuba 2010). In view of these concerns, this proposal seeks to conducts a critical assessment of the risk management framework in one of Nigerian commercial banks. While examining the overall banking sector, the study will devote particular focus to Fidelity bank in Nigeria as a case study.

Overview of Fidelity Bank

Fidelity Bank Plc is one of Nigeria’s largest commercial bank based on market capitalization of 2nd July 2013 (N86.34 billion). This commercial bank provides a range of products and services including consumer and commercial loans, mortgages, trade finance, project finance, money market and treasury services, and financial advisory services among other services. With a workforce of around 4,000 employees, the bank operates a network of more than 170 branches in Nigeria.

Fidelity first started operating as a merchant bank in the late 1980s but was converted to a commercial bank in 1999 and to a universal bank later in 2001 (Annual report 2011). In May 2005, Fidelity bank joined the list of commercial banks in the Nigerian Stock Exchange and in December, it merged with FSB international Bank and Manny Bank to form the currently enlarged Fidelity Bank.

Significance of the study

Despite the challenges that have hit the fragile banking industry, financial performance of Fidelity Bank shows remarkable growth. However, with the current economic expansion in Nigeria, Fidelity bank is likely to be faced with an increasing demand for loans. And given the rapidity of loan defaults in the past, it is worthwhile to examine the risk management framework and to critically evaluate its effectiveness.

The findings that will be obtained from the proposed dissertation are expected to help Fidelity Bank Plc to strengthen their risk management strategies and enlighten the management and staff about the importance of having in place an effective risk management framework. Further, this research will contribute to the body of knowledge on risk management and inform development of policies and best practices in the banking industry

Research objectives

The proposed dissertation seeks to address the following research objectives:

To examine the usefulness of risk management in the banking industry
To analyze the nature of risk inherent in Fidelity Bank and highlight existing systems of control.
To investigate the risk management framework at Fidelity Bank PLC and evaluate its effectiveness.
To find out whether profitability of Fidelity Bank has improved as a result of its risk management strategy.
To ascertain the extent to which Fidelity Bank has been able to restore depositor confidence, in the wake of the financial meltdown.
To propose recommendations that would enhance the functions of risk management at Fidelity Bank

Literature review

A review of literature on risk management in the banking environment is going to be conducted in order to provide the necessary background information for this study. The literature review section will begin with an exposition of risk management followed by analysis of the various risks inherent in the banking industry.

As suggested by Athanasoglou et al. (2005), risk refers to a situation occasioned by internal and external factors which create obstacles to achieving objectives in an entity. Risk management can be defined as a systematic process of identifying, evaluating, monitoring and controlling risks facing an entity or organization (Raja 1998). The banking business by its very nature is a high risk business (Owojori et al. 2011). This is particular the case because the banking business is the only business in which the proportion of borrowed funds far exceeds that of owners’ equity. As pointed out by Ferguson (2003) and Umoh (2002), only a few banks can withstand a persistent run. As depositors withdraw their funds, banks hemorrhages and if the bank does not receive liquidity support, it may collapse (Owojori et al. 2011).

The risks that commercial banks may face can either be endogenous or exogenous. Endogenous in the sense that it is associated with the nature of the banking business itself, and exogenous in the sense that it is found outside the financial system and banks have no control over (Owojori et al. 2011). Endogenous risks may include liquidity risk, credit risk, operational risk, legal risk, reputational risk, information technology risk, leadership risk and customer satisfaction risk. Whereas risks that are exogenous to the bank include industry risk, regulatory risk, market risk, sovereign risk and government policies risk. Umoh (2002) added other important risks which include the human resource risk, competition risk and fraud risk.

Bank operational activities often give rise a number of these risks including market and technology risk, liquidity risk, concentration risk, reputational risk and other risks with credit risk exposure occupying the centre stage (Onaolapo 2012).

Fig.1 Conceptual framework showing the generic linkages between various bank risks

These risks pose a major threat to their success and survival. Credit risks are particular of great concern. A recent study by CBN (2010) showed that bad loans and advances contributed most to the distress of commercial banks, indicating that credit risk was the greatest threat. Two prominent studies, Onyiriuba (2004) and Fatemi & Fooladi (2006), recommended five C’s for managing credit: borrower’s character, capacity, capital, collateral and conditions. When making credit decisions, most banks employ the Five C’s of credit. However, this risk management approach is subject to certain constraints. The five C’s are performed by human beings who can be inconsistent and subjective in their assessments (Onaolapo 2012). As such, it is often difficult to conduct objective assessment with the 5 C’s. There are, however, a range of other credit assessment tools which include rating systems and credit scoring models.

Lending is one of the core functions of commercial banks and is considered one of the highest income generating assets. Whilst lending of finance to the deficit economic sector is intended at maximizing shareholder’s wealth; such lending is often at the expense of a risk – return trade – off. Attention thus needs to be paid to risk management. In fact, risk management is a necessity in the banking sector.

More recently, there has been an emphasis on integrated risk management, a risk management strategy that involves the identification of collective risks and implementation of a firm-wide strategy to managing the identified risks. In this regard, Meulbroek (2002) argues that integrated risk management has only recently become a practical possibility owing to the advancements in IT and development of sophisticated and globally-tested legal and accounting infrastructure which has enabled for the use of contractual agreements on large scale and at a low cost.

Research questions

The primary aim of this study is to conduct critical assessment of the risk management framework at Fidelity Bank Plc. This is going to be addressed through the following research questions:

What risks are inherent in Fidelity Bank
How effective is the Bank’s risk management framework
Has the resultant risk management framework translated to economic gains
To what extent has Fidelity Bank been able to restore depositor confidence especially considering the impact of the recent global downturn
What can Fidelity Bank Plc do to enhance the functions of risk management

Hypotheses

The study also intends to test the following two hypotheses:

Fidelity Bank Plc formally takes risk analysis into consideration in their investment decisions.
The risk management framework employed by Fidelity Bank Plc has enhanced the bank’s profitability and investment performance

Research methodology

Research design

As pointed out by Babbie & Mouton (2004), research design focuses on the end product. The point of departure for this study will be to identify the research problem and research objectives. From the objectives, it will be necessary to conduct a literature review that would provide the necessary background information for the study. An appropriate research approach will then be employed to address the research questions adequately.

Research philosophy

The aim of this study is to critically assess the risk management framework of Fidelity Bank in Nigeria. The conceptual framework identifies risk such as liquidity risk, credit risk, reputational risk, operational risk, leadership risk and industry risk among others. The success of Fidelity bank Plc in managing these risks may be hypothesized. But since it is the effect of Fidelity’s risk management framework that is to be investigated, a realist approach will be more appropriate to this study than a positivist.

With positivist research paradigm, an assumption is made that the reality is fixed, knowable and directly measurable. On the other hand, realism combines both positivist and interpretivist positions. Realists take the view that things have to act in a certain way and that certain factors may moderate their actions (Saunders et al. 2007). Realist paradigm is thus more concerned with understanding and explanation as opposed to prediction. Based on these, a realist research paradigm is more suitable for this study.

Research strategy/approach

Addressing the objectives of this research will require gaining an in-depth understanding of the academic enquiry at hand. Consequently, this necessitates a methodological approach that would facilitate in-depth understanding and enable the research to critically explore on the research topic. In this view, a case study approach has been chosen for the proposed dissertation. A case study strategy has been chosen as it allows the researcher to focus on a specific context and allows for in-depth investigation into the academic enquiry at hand.

Data collection

The researcher intends to combine both qualitative and quantitative methods of data collection in order to achieve triangulation. The primary data will thus be obtained through semi-structured interviewing and administration of questionnaires to the selected sample of respondents. As pointed out by Saunders et al (2007), semi structured interviews is important in the collection of data as it facilitates better understanding between the interviewer and interviewee. Semi-structured interviews allow the participants to respond freely and express their views in their own terms. Further, the interviewer is able to probe into questions that may need further clarity, thereby allowing for in-depth research. However, the effectiveness of interviews is dependent on the communication skills of the interviewer including the ability to listen attentively, clearly structure questions and probe appropriately as well as encourage the interviewee to respond freely.

Similarly, questionnaires have their own advantages and disadvantages as well. Advantages include the low cost of data collection and being free from the bias of the interviewer. Disadvantages include the low response rates and inability to probe responses. Clearly, each method of data collection has its own strengths and weakness. As such, the researcher has chosen to use both methods in order to achieve triangulation, wherein the inherent weakness of one method will be reinforced by the strengths in the other method (Saunders et al 2007).

Purposive sampling

Purposive sampling method will be used in selecting respondents for the interviews. This form of non-probability sampling technique is often used synonymously with qualitative research. In purposive sampling, the decision to select individuals to be included in the sample is based upon a variety of criteria such as the specialist knowledge on the research topic. Participants chosen to participate in the study will include branch managers, enterprise risk managers, project managers and operation managers. These participants have been purposely selected given their knowledge and experience in managing risks. Five Fidelity bank branches from Lagos Nigeria will be chosen randomly and purposive sampling technique used to select the interviewees.

Data analysis

The data obtained will then be analyzed using simple percentages. In addition, chi – square (x2), a non-parametric statistic will be used to test the two hypothesis using data obtained from responses in the questionnaires. The chi – square formula is as follows:

X2 = ? (O-E)2 /E

Where O = Observed frequency

E = Expected frequency

? = Sign of summation

The value obtained will be compared with the Chi – Square table value using the selected levels of significance. If the computed value is found to be less than the table value, it will imply that the null hypothesis holds and is thus accepted (Ayodele 2012). But if the computed value is found to more than the table value, then the implication is that the null hypothesis is rejected.

Limitations of the research study

Whilst positive that the objectives of this study are going to be achieved; the researcher recognizes that the study may be subject to the following constraints.

Participants may not be willing to reveal certain crucial information due to the sensitive nature of such information and the impact that it may have on them.
Difficulty in retrieving information due to bank’s obvious tendency to classify most of their information
Time constraints and financial impediments that may hinder the success of this dissertation. Fidelity Bank operates a wide network of over 170 branches in Nigeria. Given the time and funds constraints, it will not be possible to conduct a risk assessment on each branch.

To surmount the reluctance of respondents, the researcher is going to assure them of their anonymity. That is, the respondents are not going to be directly identified in the study. In addition, the researcher intends to conduct a follow-up on the responses. Further, the researcher will make the best efforts to optimize on the available resources without allowing these limitations to affect the depth and quality of research. Whilst these limitations are significant, the researcher will endeavor to ensure that the constraints mentioned do not impinge on the validity of the work.

Conclusion

Most banks are still more concerned with returns and pay little attention to risks, despite the fact that the latter accompanies the former. Whether Fidelity Bank Plc maintains a robust and effective risk management framework is subject to investigation.

Reference

Abdullahi, S., 2013. Distress in the Nigerian banking industry: a critical assessment of its nature, causes and extent. [Viewed on 15th July 2013] available from http://www.freewebs.com/bizadmin/publication4.htm

Akinyemi, B., Ojiako, U., Maguire, S., Steel, G. and Anyaegbunam, A., 2012. ‘Nigerian banks and the perception of risk in PPP project delivery’. Journal of Finance and Management in Public Services, Vol. 8 (2)

Allen, L., 2002. Credit risk modelling of middle markets. Zicklin School of Business

Annual report, 2011. Fidelity bank Plc 2011 annual report and accounts. Fidelity Nigeria

Ariccia, G.D. and Ratnovski, L., 2011. Bailouts, contagion, and risk-taking. International Monetary Fund

Athanasoglou, P.P., Brissimis, S.N. and Delis, M.D., 2005. “Bank-specific industry specific and macroeconomics determinants of bank profitability.” “Journal of International and Financial Markets, Institutions & Money”

Awojobi, O., Amel, R. , and Norouzi, S., 2011. Analysing risk management in banks: evidence of bank efficiency and macroeconomic impact. MPRA paper no. 33590

Ayodele, T.D., 2012. ‘Risk management and project appraisal in Nigerian banking industry – theory versus reality’. Journal of Emerging Trends in Economics and Management Sciences, vol.3 (4), pp.375-379

Babbie, E. and Mouton, J., 2006. The practice of social research. Oxford University Press

Central Bank of Nigeria (CBN), 2010. The Nigerian banking industry: what went wrong and the way forward. Central Bank of Nigeria

Chiejine, F.C., 2010. Corporate governance in the Nigerian banking sector: an ethical analysis of the 2009 regulator intervention and operators’ behaviours. University of Pennsylvania

Fadun, O.S., 2013. ‘Risk management and risk management failure: lessons for business enterprises’. International Journal of Academic Research in Business and Social Sciences, vol.3 (2)

Garuba, A.O., 2010. ‘Credit risk management in the Nigerian banking industry’. Journal of Research in National Development, vol. 8 (2)

Muelbroek, L. K., 2002. Integrated Risk Management for the Firm: A Senior Manager‘s Guide, Working paper. Harvard Business School, working paper.

Oluchukwu, N.B., 2012. ‘Risk management in the Nigerian Banking Industry’. Journal of Business and Management Review, vol.1 (10)

Onaolapo, A.R., 2012. Analysis of credit risk management efficiency in Nigeria commercial banking sector, (2004-2009). Nigeria: Ladoke Akintola University of Technology

Onyeka, U., 2013. Effective risk management as panacea for financial institutions’ collapse. [Viewed on 15th July 2013] available from http://nationalmirroronline.net/new/effective-risk-management-as-panacea-for-financial-institutions-collapse/

Owojori, A., Akintoye, I.R. and Adidu, F.A., 2011. ‘The challenge of risk management in Nigerian banks in the post consolidation era’. Journal of Accounting and Taxation, vol.3 (2), pp.23-31

Rejda, G. E., 1998. Principles of risk management and insurance, USA: Addison

Santomero, A.M., 1997. Commercial bank risk management: an analysis of the process. The Wharton School, University of Pennsylvania

Saunders, M., Lewis, P. and Thornhill, M., 2007. Research methods for business students. England, FT Prentice Hall, Pearson Education

Umoh, P.N, 2002. “An overview of Risk management Practices in the Nigeria Banking Industry.” NDIC Q., 12(4): 36-48.

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A number of factors disqualified the ‘deserted wife’s equity’ from recognition as a property right in National Provincial Bank Ltd v Ainsworth [1965] AC 1175:

Introduction

I suggest you look at the developing concepts of fairness, because this is why the MHA 1967 was developed. Proprietary Estoppel for cohabitees is becoming less prevalent due to the decisions in family home trust. Thus, fairness is at the centre of the approach, except the clear provision of a proprietary interest is necessary and not merely the provision of a roof over the other’s head. This is common to Ainsworth, proprietary estoppel and the family home constructive trust. The rationale is that it would not be fair to impose a proprietary right without a proprietary intention.

The case of National Provincial Bank Ltd v Ainsworth [1965] AC 1175 holds a limited approach to understanding non-occupier’s rights in property.

National Provincial Bank Ltd v Ainsworth held that the common law right for the husband to provide a roof over the head of the deserted wife was merely in personam. This means selling the property to a third party will allow the husband to avoid his obligation to his deserted wife

It is important to note that it predates the Matrimonial Homes Act 1967 (MHA 1967).

The MHA 1967was developed to remedy the flaw in National Provincial Bank Ltd v Ainsworth, which indicates that the legislature recognised that the existing law with respect to deserted wife’s equity and its enforceability against third parties was manifestly unfair.

The law on proprietary estoppel provides that the third party find their rights will be interfered with.

The elements of proprietary estoppel can result in an in personam right defeating an in rem right if the following element is fulfilled:

Reasonable belief that the person will have interest in property
Acts reasonably in reliance
Gillet v Holt

This is illustrated in a number of cases that have expressed that the main factor is that there is a clear expression of a proprietary right in the property (Thorner v Major [2009] UKHL 18). The case of Walsh v Singh [2010] 1 FLR 1658 held that conduct plus detriment is not enough is not enough to allow a claim for proprietary estoppel. In addition, the case of Negus v Bahouse [2008] 1 FCR 768 held that statement to provide a roof over the individual’s head or a determination to move in is not enough to allow a claim for proprietary estoppel.

The Negus v Bahouse Case is, in part, applies the same formulaic approach, as The implication is that there has to be a clear expression of a proprietary right, in order for proprietary estoppel to be used.

There are a series of cases on the constructive family home trust, which may change the goal posts on what an expression of a proprietary right when it comes to a spousal/partner interest. These cases are Oxley v Hiscock [2004] EWCA Civ 546, which identified that in family relationship there is an obligation to ensure that there is fairness in the rights of a non-property owning spouse/partner.

In these cases the use of the constructive trust would be better for the family member who has relied on a property right inferred by the property owning spouse/partner (

The “deserted wife” (partner) has to show that she “has any interest in it [the property] at all” (Stack v Dowden at 56). This means the intention is imputed through the relationship (i.e. relationship plus contribution = share in the property). Thus, both proprietary estoppel and the family home constructive trust has move away from the in personam right not trumping an in rem right. However, for this to work there has to be a clear expression of a proprietary interest and not merely providing a roof over the individual’s head (Negus v Bahouse cf. National Provincial Bank Ltd v Ainsworth for similarity).

The impact of the fairness rulings in Oxley v Hiscock. Stock v Dowden and Jones v Kernott may change the mere expression argument if the nature of the relationship imputes an assumption of a proprietary right. Thus, potentially the obligation to provide a roof over the head of the other party is sufficient.

Additional References to Consider on top of Proprietary Estoppel:

Baroness Deech, ‘Cohabitation’ [2010] Family Law 39

Fretwell, K “Fairness is what justice really is: Kernott v Jones in the Supreme Court” (2011) Family Law 41(7)

Hayward, AP “Family Property and the Process of Familialization of Property Law” (2012) Child and Family Law Quarterly 24(3)

McGhee, M “Shifting the Scales of Social Justice in the Cohabitation Context: The Juridical Basis for the Varying of interests in Residential Property” (2012) Oxford University Law Journal 1(19)

Mee, J “Burns v Burns: The Villain of the Piece?” in Probert, R, Herring, J and Gilmore, S Landmark Cases in Family Law (Hart, 2011)

Mee, J “Ambulation, Severance and the Common Intention Constructive Trust” (2012) Law Quarterly Review 128(500)

Miles, J “Charman v Charman (No 4) [2007] EWCA Civ 503 – making sense of need compensation and equal sharing after Millar: MacFarlane” (2008) Child and Family Law Quarterly 20(376)

Pawlowski, M “Joint ownership and the family home” (2011) Property Law Review, 1(68)

Probert, R “Cohabitation: Current Legal Solutions” (2009) Current Legal Problems 62(1)

Probert, R “Cohabitation in Twentieth Century England and Wales” (2004) Law and Policy 26(1)

Smithdale, J “Inference, Imputation, or BothConfusion Persists over Beneficial Interests in the Family Home” (2011) CSLR 74, p 79

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Total Quality Management: A Case Of Barclays Bank

Abstract

A number of bankers hold the school of thought that banks fall under the finance industry instead of the service industry. In consequence, the competition is more inclined to financial prowess rather than service quality. The banking and financial institutions devote their resources, system, time and people more on managing the cash and the assets instead of managing customers and service. The procedures and products setup are in line with the bank’s convenience instead of the customer’s convenience. Additionally, most of the systems are designed with the aim of controlling the customers rather than offering satisfaction. Banks and financial institutions usually give customer service and satisfaction low priority. With few systems designed to monitor customer loyalty.

Contrary to that thought, banks and financial institutions provide the service of financial custody to its customers thus belong to the service industry. For this reason, total quality management is applicable in the banking sector given its success with manufacturing industries. Banks stand to benefit from implementation of total quality management owing to the fact that their survival depend on customer loyalty and satisfaction. However, banking sector is somehow slow in reallocating into the customer-first archetype. The paper focuses on Barclays bank; it outlines and analyses how the banking organisation has introduced and developed a comprehensive system of total quality management in addition to the impacts of the implementation. Furthermore, it provides a critique on the same while highlighting possible areas necessary for improvement.

Background

The current global market is highly competitive with a characteristic of ever escalating customer demands such as, the need for improved products and services. Most markets have increasing supply of aggressively priced services and products from low labor cost sources. With the current competitive threats present in the market place, it is imperative for organisations and businesses to embrace improved and result oriented strategies (Cheng, Madan & Motwani, 2012). Incessant enhancement in total business activities with a keen focus on customer all through the entire organisation, in addition to prominence on quality and flexibility is of the essence to an organisational success. Quality, its management, and the associated continuous improvements play a significant role in many organisations.

It is equally important to note that most organisations and businesses utilize total quality management as a means through, which they can endure in increasingly belligerent markets while maintaining their competitive edge over their challengers. The lifeblood of all businesses and organisation is its customers. In most cases, customers determine the sales of businesses and organisations based on their perception of the product and service quality. In consequence, quality concludes profits while the customers delineate and determine what quality entails. The implementation of total quality management has a myriad of benefits to an organisation and business as a whole; increased market share, amplified profitability, customer and employ satisfaction and heightened competitive edge against competitors. High quality has a direct correlation with the survival of organisations challenged with strong global competitors. In most organisations, competitive success is because of high quality (Eriksson & Hansson, 2010).

Presently, the high-end significance of implementing total quality management makes it imperative for organisations and businesses to embrace high quality, its management and continuous improvements, especially in the current increasingly competitive market. The organisations that fail to embrace the principle of total quality management are bound to be unsuccessful. Additionally, total quality management is no longer an alternative for organisations willing to survive in the strong competitive markets. In ensuring customer confidence and competing for international business, organisations with ISO certification hold a distinct edge against their rivals. To the quality conscious buyers, total quality management is an imperative process of value addition (Dusseav, 2012).

Total quality management entails the methods of management used to improve the productivity and quality in a business organisation: A widespread management approach operates horizontally across a business organisation. Total quality management involves all employees and departments extending forward and backward to include both customers and suppliers. Total quality management model employs a systematic approach on improving quality based on; personal accountability for assemblage success, team-based work groups, running of the work process possessed by individuals, motivation, and quality desire above quantity and facilitated communication involving functional areas and groups. Within the model, suggestions for improvements are sought from every echelon of the business organisation while motivation is distributed through recognition programs and profit sharing. Employee training in the scientific approach to fact-based problem solving remains the feature of the TQM model. The model embraces the use of tools like process flow charts, orthogonal arrays, statistical process control charts and Pareto charts (Cheng, Madan & Motwani, 2012).

For any business organisation, quality provides a strategic advantage; a heightened competitive advantage and organisational survival. An organisational strategy based on quality aimed for competitive advantage usually emphasises on strategic resource on unremitting quality enhancement. In addition to creating price-value advantage above competitors, quality allows the organisation to charge a superior per unit sale price through differentiation. A business organisation is able to achieve a more sustainable competitive advantage through implementation of strategy of high quality. Organisations operating and competing on quality hunt an operational strategy capable of controlling product and service quality while seeking incessant improvement.

Different market researchers suggest that organisations should focus on quality improvement in order to gain competence instead of laying emphasis on the current foci including efficiency, revenue, and market share. The current foci are by-products of competence that an organisation can achieve through focusing on product and service quality. Organisations vary in terms of the management practices, culture and the processes used to produce and deliver the products and services (Cheng, Madan & Motwani 2012). In this regard, total quality management strategy varies from one organisation to another. However, total quality management calls upon techniques and tools of lean manufacturing, quality control, ISO 9000, six sigma, and a customer focused culture.

Introduction

Barclays bank is one of the leading financial institutions across the world with over three hundred years of experience. The headquarters of Barclays Bank is situated in the UK with various branches across several countries worldwide. The bank has a strategy to increase the growth potential through continued diversification of business by customer, geography and product. It has the responsibility of progressing, investing, lending and protecting the money of close to thirty million customers across the globe. One of its branches has built a very strong reputation; the Barclays Bank Plc, Mauritius. The Mauritius branch; with close to one thousand one hundred employees, offer various services for corporate as well as individual customers.

Quality implementation

There are a myriad of approaches and models for a successful implementation of total quality management within an organization. Some of the approaches and theoretical models that are extensively used include; Crosby’s 14 steps to Quality improvement, Juran 10 points for quality improvement and W.E Demings’ 14 points for quality improvement (Bowen, 2013).While a widely agreed upon approach does not exist, Barclays bank has applied an implementation approach that borrows certain concepts and strategies from all the widely known approaches. The bank has implemented its total quality management system in a more customized way. The bank has adopted the EFQM framework theory in its implementation of TQM. Basically, the approach calls for a focus on results, customers, dependability of purpose, involving and training employees, incessant learning and social responsibility. The bank has applied all these criteria in its implementation approach of TQM (Sila, 2012).

In a bid to improve its competitive edge and survivability, the branch has employed a number of strategies that ensure high quality of service delivery to their customers. It has embraced unremitting enhancement in total business activities, with a keen focus on customer all through the entire organisation. It is imperative for the bank to create constancy of purpose for unremitted enhancement of services and products. Barclays bank has embraced this as the first priority in implementing quality management. The bank has allocated its resources for long term planning instead of short-term profits. In order to ensure competitiveness and existence of the bank, it has invested in quality and innovation (Dusseav, 2012). Its management motivates their employees in addition to clear communication of the bank’s policies. The strategy of total quality management implementation has been generally broken down into two major categories in the bank’s modus operandi: Human resource management and service quality, and customer satisfaction implementation.

Under each major category of the strategies, there are subdivisions of the strategies. All these form a coherent system of TQM implementation at the bank for improved competitive edge as well as survivability.

Quality Service and H R Management

Barclays bank acknowledges the significance of the human factor as a major determinant in the successful implementation of total quality management. As a result, the bank has accorded superior attention to human factors such as motivation, teamwork and cooperation. The bank conducted an interview on their employees in regards to their viewpoint, before the implementation of total quality management. A number of employees agreed on the introduction of the total quality management by the management. They held the belief that there was a relationship between the introduction of TQM and the success of the bank. The bank introduced the system through written pamphlets to its employees.

In an effort to thoroughly understand how the bank has introduced and develop its TQM system, an analysis of the three sub-divisions under human resource management in light of quality management was undertaken (Eriksson & Hansson, 2010).

Focus on meeting employee needs

Barclays bank focuses on employee needs given that the bank tries to improve their performance through encouraging creative thinking, holding training programs and teamwork. All these activities are aimed at enhancing the employees’ professionalism. Additionally, the bank provided its employees with a chance to express their views while offering rewards for excellence performance. It has a competently designed training program that emphasises on incessantly improving the professional skills of its employees. Techniques such as, workshops, industry level seminars and job training are employed to ensure the efficiency of the program.

Focus on continued improvement

In a bid to meet the needs of its employees, the bank management tries to enhance the quality continuously through mistake avoidance, cost minimization of financial services, keeping of good documentation system and unremitting amendment of work practices. According to the employees, the bank strives to focus on the customers as well, given that they run surveys with the aim of finding out the customer’s needs. The bank is characterized with listening and providing financial advice to its employees’ interests and needs (Edwards, 2013).

Focus on management competition needs

It is important to realize that, through creation of effective means of communication between the employees and the customers, the bank has managed to develop their competitive edge. The bank acquired an ISO certification, which has led to a heightened bank performance level as compared to other banking institutions. Additionally, Barclay bank is always on the look-out for new technology aimed at modifying the current process of operation. The bank’s management acknowledges the importance of process innovation in a bid to evaluate their operation processes and the need to alter them. Process innovation has seen the bank to greater heights in terms of customer and employee satisfaction. The innovation allows the lower level management within the bank to communicate to the top management on exactly how the processes should be conducted in order to reflect the true customer satisfaction (Eriksson & Hansson, 2010).

Customer satisfaction

Barclays bank holds both individual and cooperate customers with high esteem as it acknowledges their significance in the success of the institution. In a bid to create an impressive customer appeal and product and service endorsement, the management of the bank has placed life-long strategies within its services provision. These strategies are focused on constantly delighting and surprising their esteemed customers ahead of their arch competitors. The management of Barclays bank not only ensures that their esteemed customers purchase their product but also recommend the products to their families and friends (Frick, 2009).

In an interview conducted to establish the level of customer satisfaction, Barclays showed a satisfactory level of satisfaction to the needs of their customers. The bank has modern technical equipment such as A.T.M services which help save the customers time thereby facilitating their deal with the bank. Apart from the A.T.M services, the bank has employed various strategies aimed at reducing the processing time of its key products and services such as new accounts, loans, credit cards and cheque encashment. Through innovation of mobile applications, the waiting period and down time as well as the queuing period has been significantly reduced (Edwards, 2013).

According to the customer feedbacks, Barclays bank delivers most of its promises to their customers. It has eliminated a number of bureaucracy procedures that are deemed obstacles on delivery of promise agreements. The bank management has created an image of reliability among its customers through the use of good dependable documentation. In order to improve the level of customer satisfaction, quality of services offered by the bank is undertaken by qualified employees. The employees are trained to serve the customers with friendliness and efficiency. The working hours of the bank are deemed suitable for their customers and employees on a similar basis. The bank’s skilled employees not only offer quality services, but also quick delivery. This creates a sense of customer being the emphasis of the banks operation.

Barclays has effective communication systems through, which the customers’ complaints are channeled and promptly handled. This way, the bank improves on its weakest areas on customer service thereby enabling the customer to feel appreciated as part of the bank.

Additionally, the bank focuses on improving the quality of products and services offered in the bank apart from customer service. Barclays bank has some of the best interest rates, inclusive of all charges and hidden fees thereby depicting the quality of its services and products. The enquiries made by the customers either through phone or in person are promptly answered. The bank has trained its employees to employ good work ethics in responding to customer enquiries: few rings before the phone is picked up, reduced number of transfers before the customer is connected to the right person and prompt answering of the phone (Edwards, 2013).

The bank employs accuracy and timeliness of account statements as compared to their competitors. This ensures the customers’ trust on the bank while upholding the bank’s image, reputation and integrity. These qualities put the bank at a higher competitive edge within the banking industry.

Conclusion

In conclusion, the implementation of the total quality management in Barclays is considered successful given the numerous benefits associated with the embrace of the system. The level of commitment practice by the bank’s management has greatly ensured an improved quality of the services offered at the bank. The bank has witnessed a number of benefits associated with the influence of customer satisfaction and continuous process improvement methods on the quality of service delivery and profit margins. The services offered at Barclays have been identified as some of the best as compared to other financial institutions. In terms of focus on employees, the bank has been ranked top as its rewards its employees with competitive salaries. The high quality of services offered by the bank has allowed the bank to charge high prices for its products and services on similar basis. This has ensured high profitability and increased competitive advantage over their rivals. Total quality management should not be considered as alternative, instead effective strategies should be adopted to ensure its successful implementation.

In order to ensure that total quality management implementation is effective, it is recommended that the bank expands the role of internal auditor to examine the bank’s performance in terms of service, quality, value and cleanliness instead of limiting their functions. Even though the bank utilized written documents during the introduction of the TQM implementation, it is imperative to change the banks configuration and work practices to facilitate accomplishment of the TQM concepts. It is a daunting task for the bank to differentiate itself from its competitors given that an introduction of a new marketing strategy will automatically be copied. It is therefore imperative for the bank to ensure high quality of services, products and service delivery in a bid to ensure the customers’ loyalty.

Bibliography

Bowen, R. (2013, December 4). Learn the Theories of Total Quality Management. Retrieved October 31, 2014.

Cheng, C. H., Madan, M. S., & Motwani, J. (2012) Implementing quality management in the banking services sector. Total Quality Management, 7(4), 347-356.

Dusseav, S.P. (2012)”An analysis of the relationship between financial performance and TQM”, University of Missouri.

Eriksson, T & Hansson, J. (2010) “The impact of TQM on financial performance”, Measuring Business Excellence, Vol. 7, No. 1, 36 – 50.

Edwards, C.(2013) Barclays Bank Plc V. Rbs Advanta. Reports of Patent, Design and Trade Mark Cases, 113(10) 2012, 307-319.

Frick, R. A., (2009) The application of total quality management on service quality in banking. New York, NY: Wiley.

Sila, I. (2012). Examining the effects of contextual factors on TQM and performance through the lens of organizational theories: An empirical study. Journal of Operations Management, 23(12), 83-109.

Appendix

TQM- Total quality management

A.T.M – Automatic teller machine

ISO 900- A family unit of quality management standards

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Airline Bankruptcy Filings May Be Soon

Delta Airlines and Northwest Airlines are expected to file for bankruptcy protection in September to get ahead of the new bankruptcy law. The new legislature includes a provision that restricts payouts to executives in the time of bankruptcy protection and calls for quicker reorganization. Both Northwest and Delta failed to cope with rising fuel costs and continue to lose money. In fact, Northwest’s losses got even worse, with second-quarter loss going from $182 million in 2004 to $225 million in 2005. Delta’s loss in the second quarter was still higher: the airline lost $382 million.

The new, more restrictive law was probably inspired by delays in the reorganization of some companies. For instance, United has been under bankruptcy protection for two and a half years. During this period the management failed to prepare a reorganization plan and has asked for several extensions of the exclusivity period.

I believe this shows two things. First, it is painful to realize that the once booming airline industry has not yet recovered after September 11th attacks. True, an important factor is fuel cost, and this has been rising for a while due to increasing oil costs. But I think if the industry had not survived the nasty crisis of the attacks, it would be better prepared to meet the rise in fuel cost.

Second, it shows the difficult choices the rulers of the nation have to make. Take, for instance, bankruptcy – they certainly do not want to leave the airline companies out there in the cold coping with problems on their own. On the contrary, they do not want to encourage management to reserve huge bonuses for themselves at the time of the crisis. And yet companies in trouble need all the managerial talent they can get and so need to keep their managers. It sometimes scares me to think how careful a government leader needs to be to balance all these issues in order to stimulate management but also to keep their appetites in check.

No Driver’s License? No Parking Space

The article by Daniel Li focuses on the problems of illegal immigrants residing in one of the apartment complexes in Anaheim, Ca., caused by the decision of the management company to deny parking right to everybody who is unable to produce a driver’s license, vehicle registration and proof of insurance.

The opponents of the decision say that it is discriminating against illegal immigrants who are residing in Hermosa Village. The management definitely knows that many of the tenants are undocumented and thus have trouble getting a driver’s license. These people cannot park in the streets of the low-income neighborhood after its streets became public. Now they cannot park in front of their houses as well.

The management company representatives say that they did not mean to discriminate against illegal immigrants. They merely wanted to protect the safety of their tenants and remove those who had licenses revoked after they got in trouble on the road. The issue revives the debate the rights of illegal immigrants. Many believe they should be given drivers’ licenses. On the contrary, others say giving them the right would encourage more illegal immigration.

In my view, the management company has to decide for themselves how they position their housing. If they present themselves as cheap property for all kinds of low-income families and singles including illegal immigrants, it is probably absurd to ask people to present the documents they cannot have. Otherwise, they have to declare a war on illegal immigration and start looking for more ‘decent’ tenants. True, this can be very much like cutting the branch on which one is sitting.

As a management company, they have to show more consideration for the people they cater to and to be more committed to their customers who may not always be the most wealthy, well-bred or even law-abiding people in the world. Taking a stand on illegal immigration is a personal choice, but one has to be caring with one’s clients.

 

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New Recession Worry: Bank Fails

The article “New Recession Worry: Bank Fails” by Chris Isidore discusses construction loan problems and negative effects they have on performance of smaller and mid-size banks. The economic impact of loan problem is evident – economic analysts assume that they may result in serious credit crunch. Therefore, the overall financial system is being endangered by instability and possible financial loses.  Isidore, the author of the article, stresses that there is a need to fight strong headwinds as the risk of capital shortfalls is rising. If not managed, the situation will definitely lead to failure of national banks.

The Federal Deposit Insurance Group reports that the number of problem institutions has jumped after the loan crisis of 1980s. More than 75 banks are experiencing serious troubles. During the regular hearing on the state of the baking industry, it was reported that the mentioned 76 banks were likely to be a smaller part of the overall problem which inflicts banking sector. Many banks are really worrying about their financial stability as there is a real chance to go bankrupt. If within the next two years the number of problem institution raises up to 200, the flood of banks will lead to S&L crisis. For example, the years of 1989 was marked by a failure of more than 200 banks. (Isidore 2008)

Jaret Seiberg, financial services analyst, argues that troubled banks should be purchased before they go bankrupt. He says: “Many of these banks are highly dependent on construction lending, and that’s the area of lending that is likely to come under the most stress”. (Isidore 2008) The positive moment is that experts argue that not all banks will fail. For example, in 2007 only 3 banks failed, despite about 50 banks were listed to fail at the end of the previous year. Only Douglass National Bank in Kansas City has failed this year.

Nevertheless, the problem exists and the head of the FDIC decided to hire 25 staffers to deal with increase in bank failures. In such a way, the staff will be increased by 11% improving performance. The idea is to hire retirees who have managed to deal the S;L crisis. Of course, smaller banks are at higher risk to fail, not the global ones. Isidore says that smaller banks are “big players in the business of construction loans made to homebuilders – loans that were backed by new homes now worth a fraction of the original estimated value”. (Isidore 2008) Economic experts admit that the number of construction loans has spiked. For example, in the past six months 7.5% of single-family construction loans were violated.

I agree with the author that small and mid-size banks are the most endangered as they have less opportunities to cope with financial crisis and they need more time to restore their current positions. Moreover, credible reputation will be under the question. I think that even non-residential developers, who seem not to be hurt, may suffer from loan problems.  Isidore also supports this idea writing that “the demise of smaller lenders probably won’t have as noticeable impact on the national level, but in a lot of local markets around the U.S. it will be felt”. (Isidore 2008)

Further, I want to add that smaller banks are also marked by the greatest economic weakness and they are more likely to fail, but the customers have the chance to save their deposits. I would recommend developing better security policies in case of financial and economic crisis. Smaller banks should be more careful in providing new loans and credit as they may loose money in case of credit crunch or new loan problems.

Works Cited

Isidore, Chris. 2008, March 3. New Recession Worry: Bank Fails. Available at http://money.cnn.com/2008/03/03/news/economy/bank_failures/index.htm?postversion=2008030316 Accessed March 10, 2008.

 

 

 

 

 

 

 

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State Bank of India vs Icici

? STATE BANK OF INDIA. SBI Debt-Equity ratio : 12. 43 (march’12) A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders.

However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while personal computer companies have a debt/equity of under 0. 5. ICICI BANK LTD. ?

ICICI Debt Equity ratio: 4. 23 (march’12) Which is the better bank? As we said earlier, SBI’s government backing makes it the more ‘safer’ entity. ICICI by itself does not have the reputation of good quality assets. But it is certainly striving to achieve the same. Both in terms of margins and returns, SBI has had an edge and will continue to have it in the medium term. Having said that investors must carefully weigh the future prospects of both the entities vis-a-vis their respective valuations before taking their pick. DEBT INSTRUMENTS IN INDIA.

Debt Instruments are obligations of issuer of such instrument as regards certain future cash flow representing Interest & Principal, which the issuer would pay to the legal owner of the Instrument. They can also be said to be tradable form of loans. Debt Instruments are of various types like Bonds, Debentures, Commercial Papers, Certificates of Deposit, Government Securities (G secs) etc. The Government Securities (G-Secs) market is the oldest and the largest component of the Indian debt market in terms of market capitalization, trading volumes and outstanding securities.

The G-Secs market plays a vital role in the Indian economy as it provides the benchmark for determining the level of interest rates in the country through the yields on the government securities which are treated as the risk-free rate of return in any economy. The reserve Bank of India has permitted Primary Dealers, Banks and Financial Institutions in India to do transactions in debt instruments among themselves or with non-bank clients. Debt instruments provide fixed return declared as coupon rate.

Retail investors would have a natural preference for fixed income returns and especially so in the current situation of increasing volatility in the financial markets. Now, retail investors are also showing keen interest in Debt Instruments particularly in the Central Government Securities (G-secs). For an individual investor G-secs are one of the best investment options as there is zero default risk and lower volatility in case of G-secs. SBI DFHI is a major player in G-Secs market and widely deals in other debt instruments also. STATE BANK OF INDIA: ) GOVERNMENT SECURITIES: (dates government securities-long term, treasury bills are short term) SBI DFHI Ltd. is a leading Primary Dealer in Government Securities. SBI DFHI Ltd gives investors an opportunity to buy G-Sec / SDLs / T-Bills at primary market auctions of RBI through its SBI DFHI Invest scheme (details available on website ). Investors may also invest in high yielding Government Securities through “SBI DFHI Trade” where “buy and sell price” and a buy and sell facility for select liquid scrips in the secondary markets is offered. ) TREASURY BILLS: SBI DFHI Ltd, is an active player in the both the primary and the secondary market for Treasury Bills with an impressive total outr. ight turnover of Rs. 7,892 crores. 3) Money market instruments : Commercial paper, Certificate of Deposit: 4) non-slr bonds like public sector undertaking (PSU bonds) or corporate bonds 5) Debentures ICICI: 1) Bonds (regular income, tax saving, deep discount bonds etc. ) 2) Unsecured Debentures 3) Commerical Papers 4) certificate of deposit LISTINGS: STATE BANK OF INDIA: NSE . CODE: SBIN BSE CODE : 500112 LSE CODE: SBID ICICI: NSE: ICICIBANK,

BSE: 532174, NYSE: IBN STATE BANK OF INDIA: The declaration and payment of dividends is recommended by the Bank’s Central Board of Directors and approved by its shareholders. The Bank’s decision to declare a dividend depends on a number of factors including but not limited to its profits, capital requirements and overall financial condition. The Central Board may also pay interim dividends from time to time. All dividend payments are made in cash to the shareholders of the Bank. The Bank’s dividend policy is to declare dividends only at the conclusion of the fiscal year. ? ICICI ?

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Effect of Training on Staff Productivity in Kenyan Banks

EFFECT OF TRAINING ON STAFF PRODUCTIVITY IN KENYAN BANKS: A CASE OF KENYA COMMERCIAL BANK (KCB) By Abong’o Chacha A thesis presented to the School of Business and Economics of Daystar University Nairobi, Kenya In partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION In Strategic Management and Human Resource Management April 2012 Approval EFFECT OF TRAINING ON STAFF PRODUCTIVITY IN KENYAN BANKS: A CASE STUDY OF KENYA COMMERCIAL BANK (KCB) By Abongo Chacha

In accordance with Daystar University policies, this thesis is accepted in partial fulfillment of requirements for the Master of Business Administration degree. Date _________________________________________________ Mr. Thomas Koyier, Supervisor _________________________________________________ Prof. David Minja, Reader. DECLARATION EFFECT OF TRAINING ON STAFF PRODUCTIVITY IN KENYAN BANKS: A CASE STUDY OF KENYA COMMERCIAL BANK (KCB). I declare that this thesis is my original work and has not been submitted to any ther college or university for academic credit. Signed: ____________________________Date: ________________ Abongo Chacha ABSTRACT The objectives of the study were to analyze the effect of training on staff productivity in Kenyan banks. This involved determination of the effectiveness of training methods and their effects in employees’ productivity. The study also aimed to recommend the best strategies in employees training. This study covered 15 branches of one of the major banks in Kenya (Kenya Commercial Bank, KCB).

Stratified sampling method was applied to select the bank branches and purposive sampling was applied to select 80 respondents of the study. The survey questionnaire was utilized in the data collection. The data collected was therefore descriptive in nature. Descriptive statistic technique and multiple regression analysis were applied in the analysis of the collected data. The major findings of the study showed that the common employees’ training strategies in KCB were on-the-job training, e-learning training, class-room training and workshop training.

The effectiveness of the training methods applied by the KCB was relatively high as evidenced by the effectiveness of the detailed content of e-learning programs; well organized e-learning programs; importance of on-the-job training programs in employees’ deeper understanding of various concepts in the banking services for instance; On-the-job training methods enabled the employees to learn about the rules and principles of work, courtesy, manners and techniques of handling interpersonal relations.

The results also show that the current training methods applied at the KCB have been effective at great extent in promoting productivity of the employees. This means that there is improved work output per time, efficiency, accuracy and more skills are developed among the employees. The most effective training strategies in enhancing productivity of the employees were deemed to be on-the-job training, seminars/ workshop training and e-learning while class-room training showed less significant effect in employees’ productivity. TABLE OF CONTENTS DECLARATIONiii ABSTRACTiv

TABLE OF CONTENTSv LIST OF FIGURESviii LIST OF TABLESix CHAPTER ONE1 INTRODUCTION AND BACKGROUND OF THE STUDY1 Introduction1 Background of the Study1 Profile of Kenya Commercial Bank (KCB)8 Statement of the Problem9 Purpose of the Study10 Objectives of the Study10 Research Questions10 Justification11 Significance of the Study12 Assumptions12 Limitations12 Definition of Terms, abbreviations and acronyms13 Chapter Summary13 CHAPTER TWO14 LITERATURE REVIEW14 Introduction14 Theoretical Framework14 Human Capital Theory14 Kirkpatrick’s learning and training evaluation theory16

Effects of Training on Employee Productivity17 Training and Employee performance18 Training and Employee Commitment20 Training Methods and Employee Productivity21 Training and Employee Effectiveness24 Training Quality and Performance27 Models for Measuring the Effectiveness of Training30 Strategic Approach to Training and Development33 Empirical Review37 Conceptual Framework39 Chapter Summary41 CHAPTER THREE42 RESEARCH METHODOLOGY42 Introduction42 Research Design42 Population43 Target and Accessible Population43 Sample Size44 Sampling Techniques44 Sampling Frame48 Type of Data49

Data Collection Instruments51 Pre-testing52 Data Collection Procedure52 Data Analysis53 Chapter Summary54 CHAPTER FOUR55 DATA ANALYSIS AND INTERPRETATION55 Introduction55 Response Rate55 Employee Training Strategies used by KCB57 Class room training57 E-learning programs62 On the job training67 Effectiveness of the Employees Training methods used by KCB71 Effectiveness of training methods on employee productivity at KCB72 Best training strategies for maximum employee productivity at KCB73 Regression Analysis74 Chapter Summary77 CHAPTER FIVE78 SUMMARY OF THE FINDINGS, CONCLUSIONS AND RECOMMENDATIONS78

Introduction78 Summary of the Findings78 Employee Training Strategies78 Effectiveness of Training Methods79 Best training strategies for maximum employee productivity at KCB79 Conclusion79 REFERENCES81 APPENDICES89 Appendix A: Research Questionnaire89 Appendix B: Timeline96 Appendix C: Budget98 LIST OF FIGURES Figure 4. 1: Age56 Figure 4. 2: Education level56 Figure 4. 3: Work experience57 Figure 4. 4: Extent to which class room training affect employees’ commitment in KCB58 Figure 4. 5: Extent to which classroom training affect employee motivation in KCB59 Figure 4. : Extent to which classroom training affect employees’ self efficacy in KCB60 Figure 4. 7: Extent to which classroom training affect employee productivity at KCB61 Figure 4. 8: Extent to which e-learning programs affect employees’ commitment in KCB63 Figure 4. 9: Extent to which e-learning programs affect employees’ motivation in KCB64 Figure 4. 10: Extent to which e-learning programs affect employees’ self efficacy in KCB65 Figure 4. 11: Extent to which e-learning programs affect employee productivity at KCB66 Figure 4. 12: Extent to which on job training programs affect employees’ commitment at KCB68 Figure 4. 3: Extent to which on the job training programs affect employee motivation in KBC69 Figure 4. 14: Extent to which the job training programs affect employees’ self efficacy in KCB70 Figure 4. 15: Extent to which on the job training programs affect employee productivity at KCB70 LIST OF TABLES Table 3. 1: Sampling Frame48 Table 4. 1: Extent of agreement of the respondents with class room training as a strategy in employee training. 57 Table 4. 2: The level of agreement on of the respondents on E learning programs62 Table 4. 3: The level of agreement on of the respondents on on job training67 Table 4. : The level of rating of the respondents on effectiveness of training methods71 Table 4. 5: The level of agreement on of the respondents on effectiveness of training methods72 Table 4. 6: The extent to which the following training methods affect employee productivity at KCB72 Table 4. 7: The level of agreement of the respondents on statements on the best training strategies for maximum employee productivity at KCB73 Table 4. 8: Coefficients of the Independent Variables75 Table 4. 9: Analysis of Variance76 Table 4. 10: Squared Multiple Correlation Coefficient, R276

CHAPTER ONE INTRODUCTION AND BACKGROUND OF THE STUDY Introduction This chapter presents a brief introduction as well as historical background of employee training. An overall background of the study has been defined clearly, problem statement, objectives, assumptions, and limitations. Key terms have been defined and operationalized. Further the researcher has shown clearly why the topic has emerged as a topic of importance to the researcher. Background of the Study Nadeem (2010) defined training as the process of transmitting and receiving information to problem solving.

This implies that training is for specific purpose. Omole (1991) sees training as any process concerned with the development of aptitudes, skills and abilities of employees to perform specific jobs with a view to increase productivity. An organisation may have employees with the ability and determination, with the appropriate equipment and managerial support yet productivity falls below expected standards. The missing factor in many cases is the lack of adequate skills, and knowledge, which is acquired through training and development.

Commenting further Iboma (2008) is of the opinion that effective training can change the entire view of workers in an organisation and make the firm more productive as new skills and attitudes are developed by workers. Looking at the indispensability of training and development to an industrial set up, Ladipo-Ajayi (1994) observed that both are very demanding ventures in any organization because people commit huge resources to them. Training is one of the most important strategies for organizations to help employees gain proper knowledge and skills needed to meet the environmental challenges (Goldstein and Gilliam, 1990).

Employee training represents a significant expenditure for most organizations. Tella and Popoola (2007) relating training to library work stated that it is as an essential strategy for motivating workers in the library as a service organization. For the Librarian or information professional to have opportunities for self-improvement and development to meet the challenges and requirements to perform a task there is the need to acquire the needed skills suitable for the work at hand. Institute for Work & Health (2010) defines training as planned efforts to facilitate the learning of specific competencies.

These competencies typically consist of specialized knowledge, skills and behaviours needed for success in a particular environment. Training methods can range from a one-time dissemination of information to intensive programs administered over a long period of time. Njavallil (2007) did study training of bank employees by doing a comparative study between new generation banks and public sector banks in India. By then, there had come about many challenges in the banking sector following the new economic policy that was introduced during the nineties.

The emerging business profile of banks included newer financial services, personal investment counseling, factoring, venture capital and possibly consultancy research services. This called for new knowledge, skills and attitudes and training systems to stand up to the challenges that demanded for changes in the approaches to training. The study found that significant differences existed between the two categories of banks regarding the training provided to its employees. The differences were related to certain aspects.

Based on the study it was inapt to say that the training approach of a particular type of bank was significantly enhanced compared to the other. Sulu (2011) studied motives for training in the Nigerian banking industry focusing on the motives for training using the Nigerian banking industry as a case study . The study relied on both qualitative and quantitative analysis of data. The entire staff of the 25 commercial banks as at 2007 in Nigeria was the population of the study. The results of the analysis showed that banks saw training as important factors, as well as aving motives for investing in training. These motives included – new technology; productivity; responding to skills deficiencies; moral duty; new hire request; and staff request. Some of the recommendations based on the findings include – training should be seen as one of the most important strategies for organizations to help employees gain proper knowledge and skills needed to meet the environmental challenges; it must also be noted that, training though primarily concerned with people, is also concerned with technology, the precise way an organization does business.

Ghebrecristos (1983), studied training methods and techniques in an organization using a case study of the Commercial Bank of Africa Ltd. Nairobi, Kenya. From the findings, CBA used several training methods and techniques in building the employee capability. They made use of classroom teaching, on the job training and seminars and workshops. Ling (2007) notes that training is viewed as an expensive investment for a business organization and is often neglected during recession.

The author cites a reason as the value and contribution could not be effectively ascertained. Ling (2007) mentioned that in most studies relating to training effectiveness, the focus was on establishing the relationship between training system or practices or factors (individual and organizational) with training effectiveness, with emphasis on objective, content, organizational factors, expenditures, duration of training, coverage of employees, delivery methods, profitability, growth and overall organization performance.

IAEA (2003) states that while it is abundantly clear that training can provide added value, a measured, isolated, determination of training effectiveness is difficult because personnel performance depends not only on training, but also on many other factors such as supervision, procedures, job aids, pre-job briefings, management expectations, and the experience and motivation of the workforce. The measurement of training effectiveness i. e. how well the training inputs are serving the intended purpose has also elicited wide reviews.

IAEA (2003) identified three kinds of training outputs that organisations need to measure. They are: relating to course planning, relevance, comprehension and whatever goes on in the teaching programme and the environment; the utilisation of what is learnt on the job i. e. transferring the classroom learning to the job in terms of skills, competencies, decision making, problem-solving abilities and relationships and the like; and the changes in the mind set such as work related attitudes, values, interpersonal competencies and personal attributes.

Winfred, Winston, Edens and Bell (2003) noted that the continued need for individual and organizational development can be traced to numerous demands, including maintaining superiority in the marketplace, enhancing employee skills and knowledge, and increasing productivity. Training is one of the most pervasive methods for enhancing the productivity of individuals and communicating organizational goals to new personnel. The authors note that in 2000, U. S. organizations with 100 or more employees budgeted to spend $54 billion on formal training.

Given the importance and potential effect of training on organizations and the costs associated with the development and implementation of training, it is important that both researchers and practitioners have a better understanding of the relationship between design and evaluation features and the effectiveness of training efforts. Sahinidis and Bouris (2008) noted that insufficient knowledge and skills which can be imparted through training can cause employees not to feel motivated and lack commitment.

Abbas and Yaqoob (2009) noted that training is designed to skill employees so they can perform well. This can be done by formally developing training programs or informally through on job training. Insufficiency in knowledge and skills may result into conflict with organizational goal achievement and eventually affecting employee performance. The authors concluded that training influences employee performance Olaniyan and Ojo (2008) note that the effectiveness and success of an organization lies on the people who form and work within the organization.

Consequently, for the employees in an organization to be able to perform their duties and make meaningful contributions to the success of the organizational goals, they need to acquire the relevant skills and knowledge. In appreciation of this fact, organization like educational institution, conduct formal training programmes for the different levels of their employees. Institute for Work & Health (2010) identified two broad approaches to research on training effectiveness. One approach employs triangulation of multiple data sources and methods to gather data from end users of training.

This method combines qualitative data (e. g. from key informant interviews, focus groups and observations) with various forms of quantitative data (e. g. from controlled study situations. These data are then used to assemble valid co-relational arguments for interpretation of results. The other approach to studying the effectiveness of training explores cause and effect relationships that are pertinent to the learning process or the application of learned material within the workplace. These studies use experimental designs to investigate factors related to the training process itself.

They use measurable outcomes affecting individuals or work teams and, if feasible, gather data related to the impacts of training on the organization or relevant industry. Haslinda and Mahyuddin (2009) examined the effectiveness of training in the public sector using training evaluation framework and transfer of training elements. The findings of this study suggest that public service employees were evaluated at all five levels of evaluation, namely, the reaction, learning, behavior change, results and transfer of training levels.

Factors that can affect the effectiveness of training in the public sector include lack of support from top management and peers, employees’ individual attitudes, job-related factors and also the deficiencies in training practice. The study was done in Kuala Lampur. A number of factors have been identified that influence the effectiveness of training in an organization. Haslinda and Mahyuddin (2009) identified the human resource policy of training, employees’ attitude and motivation, and the commitment of top management to the training and development as some of the key factors.

Pfeifer, Janssen, Yang and Backes-Gellner (2011) observe that training can serve as a screening device without increasing individual productivity, i. e. , the firm learns about abilities and skills of workers and can promote the best fitting (most productive) worker to the next job in the hierarchy. They also note that training might, on the other hand, indeed increase individual productivity by teaching skills and knowledge that are important to fulfil tasks at higher job levels.

Gyes (2008) uses company-level panel data on training provided by employers in order to estimate its effect on productivity and wages in the food industry in Belgium. The productivity premium for a trained worker was estimated at 23%, while the wage premium of training is estimated at 12%. The study concluded that, by training its workers, a company can realise an extra added value per worker amounting to €1,385 higher than the cost of the required training. Konings and Vanormelingen (2009) confirmed and expanded their analysis to the whole Belgian private sector.

Again, the findings showed that training has a positive effect on productivity and wages. The marginal product of a trained worker is on average 23% higher than that of an untrained worker while wages increase by 12% as a result of training. Among the manufacturing subsectors, the largest productivity gains can be found in the chemicals and rubber and plastic industries. Finally, the study’s authors found no differential impact of training on the productivity of male versus female workers; however, wages increase more in response to training for women than for men.

Almeida and Carneiro (2006), using a panel of about 1,500 large Portuguese manufacturing firms between 1995 and 1999, found that an increase of 10 hours per year in training per worker leads to an increase in productivity of about 0. 6 per cent. Colombo and Luca Stanca (2008) investigated the effects of training on employee productivity using a unique nationally representative panel of Italian firms for the years 2002 to 2005 and found that training activity has a positive and significant effect on productivity at firm level.

Training also has a positive and significant effect on wages, but this effect is about half the size of the effect on productivity. Within occupational groups, the effect of training on productivity is large and significant for blue-collars, but relatively small and not significant for white-collars. Profile of Kenya Commercial Bank (KCB) The history of Kenya Commercial Bank dates back to 1896 when its predecessor, the National Bank of India, opened a small branch in the coastal town, Mombasa. In 1958 Grindlays Bank of Britain merged with the National Bank of India to form the National and Grindlays Bank.

In 1970, the Government of Kenya acquired 60% shareholding in National and Grindlays Bank and renamed it the Kenya Commercial Bank. In 1976, the Government acquired 100% of the shares to take full control of the largest commercial bank in Kenya. The Government has over the years reduced its shareholding in the Bank to the current 26% with the public owning the remaining 74% (KCB, 2011). The Kenya commercial bank has four subsidiaries; a wholly owned subsidiary, Savings and Loan (K) Ltd. was acquired in 1972 to provide mortgage finance.

In 1997, another subsidiary, Kenya Commercial Bank (Tanzania) Limited was incorporated in Dar-es-salaam, Tanzania to provide banking and financial services and to facilitate cross-border trade within the East African region. Since inception, the Kenya Commercial Bank Group has endeavoured to provide quality and customer friendly services geared towards meeting the ever-changing customer needs. This has ensured consistent growth in customer deposits that have, in turn, provided a strong reservoir for steady growth in customer borrowings every year. Shares in KCB have, until 2004, historically underperformed most other publicly listed banks.

The KCB share price has recovered dramatically since elections in 2004. KCB has more than 170 branches throughout Kenya, making it the largest banking network in the region. It has the largest number of own-branded ATMs in Kenya. Since 2004 most of the branches in Kenya have been rebranded as part of a wider corporate branding exercise. Since incorporation, KCB has achieved tremendous growth to emerge as a leader in Kenya’s banking and financial sector. In 1970, the bank had 32 full- time branches, of which 25 were located in rural areas, five in Nairobi and two in Mombasa.

Today, the KCB Group has the widest network of outlets in the country, comprising 170 full-time branches all of which represent over 55% of the total banking outlets in Kenya. Of the total outlets, 80% are located in the rural areas, with representation in all administrative districts. Statement of the Problem Training is an integral part of every company’s agenda. Because of the implications of training, it is important to have training that is effective. Studies have proven that more costly but effective training can save money that is wasted on cheap but inefficient training (Ginsberg and McCormick, 1998).

Unfortunately, there is no rule of thumb method of effective training. Methods of training have to be analyzed and studied before companies can rely on them to train a competent workforce. Kenya commercial bank like any other organization is in the business of providing services to its customers. For the bank to effectively serve its customers, it has to have well trained employees who ensure quality service delivery. It is very important to have a needs analysis to determine which training method works best.

There are several studies in this area in the banking industry in Kenya limited studies that have studied the impact of employee training on organizational productivity. There are numerous factors to be considered in making training method decisions. Factors such as training objectives (what is aimed to be learned), cost, and trainee demographics are some important issues to be considered. The problem is to determine the effect of training on staff productivity. Purpose of the Study The purpose of this study is to establish the effect of training on staff productivity in Kenyan banks.

The study is important in developing information necessary to lead organizations on the importance of training. Objectives of the Study The study will be guided by the following objectives: 1. To determine the strategies used by KCB in employee training 2. To determine the effectiveness of training methods used by KCB 3. To determine the effectiveness of training on employee productivity at KCB 4. To recommend the best training strategies for maximum employee productivity at KCB Research Questions 1. What training strategies are used by KCB? 2. What effect do the training methods have on employee productivity at KCB? . How does employee training affect employee productivity at KCB? 4. What are the best employee training strategies for maximum employee productivity at KCB? Justification Training has become an increasingly critical area of management for companies to enhance service quality, reduce labor costs, and increase productivity (Enz & Siguaw, 2000). Training programs can also promote teamwork; improve staff attitudes and self-awareness (Conrade, Woods & Ninemeier, 1994). Organizations must therefore focus on these different aspects in order to maintain a competitive edge in their respective industries.

Organizations should remember that training begins once an employee joins the organization and should continue throughout their tenure with the organization. Training can also be provided by everyone i. e. all employees are potential instructors and students Kenya Commercial Bank has been selected due to its large size, presence and location across the regions. In addition it has a dedicated training centre at Karen (KCB Leadership Centre) from which courses are developed and imparted to staff. Training is seen as a fundamental and effectual instrument in successful accomplishment of the bank’s goals and objectives.

Training not only improves staff resourcefully, but also gives staff a chance to learn their job virtually and perform it more competently hence increasing bank’s productivity. The ultimate implication of staff training can be noted in the bank’s bottom line. A study to evaluate the effect of training on staff productivity at KCB is thus necessary. Significance of the Study This study aims to explore the effect of training on staff productivity in Kenyan banks. KCB The study will deepen the understanding between perception and expectations as well as improve the knowledge of staff productivity by banks.

Further it will address the fundamental aspect of the correlation that necessitates KCB to undertake training to improve the productivity of its staff. Scholars This research will provide information to scholars as well as form a basis for further research to be conducted, here in Kenya as well as world-wide, regarding the effect of training on staff productivity in Kenyan banks. Assumptions The following is assumed: 1) All staff will be available for interviews. 2) Respondents are truthful when responding to questions on the survey. 3) Training is a pressing issue for many staff. Limitations

The limitations faced or anticipated are: First, due to the study limiting itself to one bank, the generalization of results can be challenged. Secondly, even though there will be a concentrated effort to get the questionnaire into the hands of all staff, there is no guarantee that the individuals will actually receive and complete the questionnaires. Lastly, due to locations of some KCB branches, some of the data collection instruments will be sent via email or sent by parcel to the branches, thereby compromising on time taken to process the same. Definition of Terms, abbreviations and acronyms KCB:Kenya Commercial Bank

Training – A process dealing primarily with transferring or obtaining knowledge, attitudes and skills needed to carry out a specific activity or task. Chapter Summary This chapter covered the background of the research, the problem statement, the purpose of the study or general objectives of this research, the research questions, the significance and scope of the research i. e. importance of the study and the definitions of Terminologies used in this research. In chapter two, I will review relevant literature that will help build on the variables and data collection methods to be used in the study. CHAPTER TWO

LITERATURE REVIEW Introduction The chapter will review relevant literature on the effect of training on staff productivity at Kenya Commercial Bank. In order to have an in depth knowledge on the effects of employee training on employee productivity, the chapter provides relevant literature in the field of study. The first part provides an overview of training; the next part examines theoretical framework and effects of employee training on employee productivity. Mugenda and Mugenda (2003) noted that literature review involves critical review of what previous work in relation to the research problem being investigated.

They argue that a properly done literature review should be extensive and thorough so as to provide the researcher with an adequate base for his or her work. I hope this literature review meets their esteemed standards. Theoretical Framework Human Capital Theory Human capital theory as formalized by Becker and Gerhart (1996) is the dominant perspective on on-the-job training. This theory views training as an investment; it raises expected future productivity but at a cost. The key distinguishing feature of a human capital investment as opposed to an investment in capital concerns property rights.

A machine can be sold, but in modern society, men cannot. As individuals have the discretion over the deployment of their own human capital, workers and firms will need to agree on an exchange in the labor market. This implies that how the costs and returns to training are shared between workers and firms is a central concern in the on-the-job training literature. Human capital theory has been further developed in the 1970s to explain the life-cycle pattern of earnings. This literature analyses the human capital investment decision of individuals in a competitive environment.

One may argue that, in this model, the distinction between education and training is an artificial one. Workers choose the investment as a function of prices (and ability). Through these prices, the demand side enters. There is no strategic interaction between workers and firms. Weiss (1985) surveys this literature. In the beginning of the 1990s, the new field of economics of information resulted in applications to on-the-job training. Recent developments in the training literature focus on the strategic interaction between employers and employees, and as such stands apart from life-cycle theories of earnings.

The focus is on market imperfections and information asymmetries. This review restricts itself to the core of private sector training theory. The reason for this focus is the scattered nature of this literature. The studies in this field differ in many modeling assumptions that complicate comparison. Yet, some common themes can be distinguished. The first major attempt to apply learning theory to educational technology was Skinner? s development of teaching machines, (Skinner, 1968). His idea was to develop curricula at such a level of detail that a learner could learn without error.

The learner, his theory held, never fully recovers from making errors; once made, there remains a possibility that they will recur to disrupt future learning and performance. Consequently, effective instruction should invoke only correct responses. He was critical of traditional teaching methods because they often engender errors in learning, and because they fail to reinforce behaviour effectively. On his theory, negative reinforcement (e. g. criticism, punishment) was to be avoided. Only positive reinforcement is theoretically sound, and this must be administrated according to specific schedules to ensure effective learning.

For instance, as new responses are shaped up, reinforcement should be withdrawn. Mechanical presentation of the curriculum seemed an ideal way for teaching since a perfect schedule of shaping and reinforcement could be built into the teaching programme. Kirkpatrick’s learning and training evaluation theory Donald Kirkpatrick’s 1994 book Evaluating Training Programs defined his originally published ideas of 1959, thereby further increasing awareness of them, so that his theory has now become arguably the most widely used and popular model for the evaluation of training and learning.

Kirkpatrick’s four-level model is now considered an industry standard across the Human Resource and training communities. The four levels of Kirkpatrick’s evaluation model essentially measure; (1) reaction of student – what they thought and felt about the training and the reaction evaluation is how the delegates felt about the training or learning experience. (2) Learning – the resulting increase in knowledge or capability, to assess whether the learning objectives of the program are met.

Learning evaluation is the measurement of the increase in knowledge or intellectual capability from before, to after the learning experience: Whether the trainees learnt what they expected to be taught; (3) behavior – The extent of behavior and capability improvement and implementation or application. Behavior evaluation is the extent to which the trainees applied the learning and changed their behavior, and this can be immediately or several months after the training, depending on the situation (the extent of applied learning back on the job. 4) Results – the effects on the business or environment resulting from the trainee’s performance. Results evaluation is the effect on the business or environment resulting from the improved performance of the trainee. This involves the organizational impact in terms of improved quality of work, increased output etc. It is the acid test. All these measures are recommended for full and meaningful evaluation of learning in organizations, although their application broadly increases in complexity, and usually cost, through the levels from level 1-4.

Effects of Training on Employee Productivity Research has shown that leadership training for executives and middle managers results in increased worker productivity (Barling, Weber, & Kelloway, 1996). Leadership development training could have the same benefits if given to the rest of the workforce (IIE Solutions, 1999). Leadership development, supervisory skills, and teamwork training often rank as the most important and most frequently offered training topics in corporations.

With the amount of money budgeted for training increasing every year and the marketplace becoming more global and competitive, it is imperative that the money spent on training is utilized to the fullest extent possible (IIE Solutions, 1999). According to Kapp (1999), manufacturing firms implementing training programs can expect an average gain of 17% in manufacturing productivity. Companies must understand that training is portable; that is, the knowledge imparted to employees will leave with the employee, thus benefiting another company. This also allows new employees to bring with them the knowledge ained from previous training programs. It is from this viewpoint that a company must manage its training program to identify the skill sets needed to increase problem solving for the present needs of the business (Miller, 1997). If gains in manufacturing productivity are achieved through the delivery of leadership training to traditional leadership groups, can similar gains be achieved in the banking industry by providing the same training to employees? Training and Employee performance People needing training can be classified in different ways. There is a distinction between novice users and expert users.

They can also be classified through their educational backgrounds, or through their current employment position. Whatever way trainees are classified, they all have different needs. It is important, when choosing a training method, to identify who is to be trained. Novice users may be computer-shy or technology-intimidated and may need personal attention. Experts may need little attention and may be bored with basic information, and therefore dampening the desire to learn. According to Campbell (2000), educational background information is important.

He also says that for people with little education, structure in learning is important. Employee position is important as well. Senior management may not have the time to attend group training or may have frequent distractions. The issue of self-esteem may also be a factor. Someone high in the ranks may not want to appear stupid to his counterparts by asking a question in group training. The explanation contributed by the knowledge management approach would be that training provides employees with the knowledge, abilities and skills required by the position.

In fact, Hitt, Ireland, Camp and Sexton (2001) found that training investment first generates a negative effect on results (deriving from the cost of the same), which later become positive, as far as the transfer of knowledge to the post is concerned. This effect can also be explained by taking into consideration that if employees perceive that the organisation is interested in training them and giving them confidence and intends to count on them in the long-term future, they will make more effort and be more effective in their work.

Training would be an important element in generating human capital. This argument is defended by Tzafrir (2005), who considers that investment in training can make employees feel indebted to the company. From a universal viewpoint some authors have argued that it is precisely in training that a greater universal effect than in other human resource practices can be seen. This is how it was noted by Lee et al. (2005) who highlight the fact that, of the 16 best practices studied by Pfeffer (1994), training is one of the few practices where a consistent, positive impact on performance is found.

The study carried out by Koch and McGrath (1996) does not directly analyze the relationship of training with performance; instead, it uses a personnel development index that showed a slightly significant effect on work productivity, measured by net sales per employee. However, this development index only gathers information through the measurement of the number of categories of jobs that receive formal training, which, to me, seems to be a very limited indicator of the training imparted by the company.

In Huselid (1995) and Huselid, Jackson and Schuler (1997) investigation, something similar happens. The combination of human resource practices is used rather than the training variable. In the first study, Huselid (1995) uses two factors to group the practices requiring a high level of commitment, the first of which designates employee and organized structure capabilities, including a wide range of practices aimed at developing the knowledge, abilities and capabilities of employees.

However, we are given to understand that it incorporates very heterogeneous practices where training has a relative weighting, since only one of the eight factor items makes reference to training (the average number of training hours received by the employee in the last year). A greater effort in training measurement can be found in the work of Delaney and Huselid (1996), who use a training index constructed from three items. The first records whether the company supplied some sort of training besides job position training, the second how many workers participated in hese programmes and the third a subjective evaluation of training effectiveness. Its results suggest that high performance practices in human resource management that include contracting on a selective basis, with training and incentives, are positively related with measurements of perception of the organization’s role. Training and Employee Commitment Training practices used by organizations may have an effect, direct or indirect on both employee motivation and organizational commitment (Meyer and Smith, 2000).

Organizational commitment is defined, in the words of Aragon et al (2003) as the relative strength of an individual’s identification and involvement in a particular organization. In order to equip their employees with the skills necessary to do their job, companies train them, in an effort to optimize their workforce’s potential. Some companies, planning for the long-term, invest in the development of new skills by their employees, so as to enable them to handle issues not currently present, but likely to come up in the future.

This kind of training can lead to high levels of motivation and commitment by the employees, who actually see the opportunity they are given. These employees’ appreciation for the investment their organization is making in them is shown in their hard work and their contentment in being a member of that organization. Training, then, is expected to have a positive effect on both motivation and employee commitment Training Methods and Employee Productivity It is readily acknowledged that individuals tend to learn differently based on preferred styles of teaching (Chambers, 2005).

Since these teaching styles impact the way individuals learn, training sessions could be augmented by designing the content to tap into each of the three different styles, thus appealing to a broad scope of disparate learning styles. For example, visual learners tend to process and recall information best when it is presented in a way that they can easily see the information. This can be achieved through the use of hand-outs, PowerPoint slides including pertinent information, and also other forms of multimedia such as videos or computer-based simulations.

Auditory learners, by comparison, process information from more of a listening perspective. Consequently, training can be augmented to focus on this preferred style by frequent descriptions of the pertinent information. This can easily be accomplished by verbalizing the content in handouts and PowerPoint presentations. Further augmentation can be achieved by allowing trainees to discuss important content in small group settings. The third learning style, kinesthetic, includes individuals who learn best by physically doing something.

Augmenting training to tap into this learning style requires the trainer to design exercises and activities that allow the learner to be physically engaged in learning. For example, a training session on team work may include an exercise where groups, working as a team, actually work jointly to accomplish some small task. One such exercise requires groups to identify some symbol they frequently associate with the idea of teams and then to work within their groups to construct their symbol using modeling clay.

This provides both visual and tactile reinforcement associated with the concepts covered in the training. Following this exercise, further discussion can reiterate important aspects of teamwork that were discussed in the training session, further reinforcing the material (Huselid, 1995). On-The-Job Training Methods The purpose of the on-the-job training session is to provide employee with task-specific knowledge and skills in work area. The knowledge and skills presented during on-the-job are directly related to job requirements.

Job instruction technique, job rotation, coaching and apprenticeship training are the common forms of on-the job training methods. Employees’ professional quality is the key of bank services, the rules and principles of work are taught in this kind of training, besides, courtesy, manners and techniques of handling interpersonal relations are taught as well. This kind of training aims to train employees to learn the best way to do the work in the most quickly and effective way (Walker, 2007). Job Instruction Training

This is a structured approach to training, which requires trainees to proceed through a series of steps in sequential pattern. The technique uses behavioral strategy with a focus on skill development, but there are usually some factual and procedural knowledge objectives as well. This type of training is good for task oriented duties such as operating equipment. The instructor or supervisor prepares a job breakdown on the job, while watching an experienced worker perform each step of the job.

Job instruction technique consists of four steps, preparation, present, try out and follow up (Blandchard & Thacker, 1999). Job Rotation This is the systematic movement of employees from job to job or project to project within an organization, as a way to achieve various different human resources objectives such as: simply staffing jobs, orienting new employees, preventing job boredom or burnout, rewarding employees, enhancing career development, exposing employees to diverse environments (Woods, 1995).

Excellent job rotation program can decrease the training costs while increases the impact of training, because job rotation is a hand on experience. Job rotation makes individuals more self-motivated, flexible, adaptable, innovative, eager to learn and able to communicate effectively. One of the possible problems with the rotation programs is the cost, because job rotation increases the amount of management time to spend on lower level employees. It may increase the workload and decrease the productivity for the rotating employee’s manager and for other employees.

Job rotation may be especially valuable for organizations that require firm-specific skills because it provides an incentive to organizations to promote from within (Jerris, 1999). Coaching This is the process of one-on-one guidance and instruction to improve knowledge, skills and work performance. Coaching is becoming a very popular means of development, and often includes working one-on-one with the learner to conduct a needs assessment, set major goals to accomplish, develop an action plan, and support the learner to accomplish the plan.

The learner drives these activities and the coach provides continuing feedback and support (DOE Handbook1074, 1995). Usually coaching is directed at employees with performance deficiencies, but also used as a motivational tool for those performing well. Coaching methods solve precise problems such as communication, time management and social skills. Executive coaching generally takes place on a monthly basis and continues over a period of several years. Often, coaches are brought in where there is a change in the structure of the company, when a team or individual is not performing well or where new skills are required.

Coaching assumes that you are fine but could be even better (Kirwan, 2000). Apprenticeship This is one of the oldest forms of training which is designed to provide planned, practical instruction over a significant time span. Apprenticeship was the major approach to learning a craft. The apprentice worked with a recognized master craft person (McNamara, 2000). Training and Employee Effectiveness Analysis from the beginning is definitely needed for training to be effective. The effectiveness of training is usually measured through user performance (Yi & Davis, 2001).

They introduces the idea of training validity which assess the performance of trainees in relation to the criteria set by the training. Training must always be evaluated with respect to both its immediate and long term impacts (Patton & Marlow, 2002). It starts from the training experience to the training outcome. The training experience includes the actual training and the immediate effects of the training based on performance. Training outcomes are the long term effects of the training (Carroll and Rosson). Researchers who have analyzed the impact of type of firm and firm size n employee training examined the training budget as the dependent variable Hitt et al (2001). A variety of training programs (in particular, informal training programs such as on-the-job training, job rotation, and apprenticeships) not usually included in the training budget were not considered, as though skills and knowledge acquired through these training programs are not relevant. Sirmon and Hitt (2003) drew attention to the importance of informal training to skill and knowledge acquisition in small firms.

In spite of the fact that in the real entrepreneurial world only a small number of companies measure the impact of training on the results (Koch & McGrath, 1996) several authors suggest that training is an instrument that makes the generation and accumulation of human capital possible. Training ensures that greater efficiency is achieved through the production of goods and services with a realistic profit margin in so doing the organization is assured of its survival in the market and in the sector as a whole (Huselid, 1995).

Given evidence that the support from peers in a training venue can impact the overall effectiveness of the learning (Armstrong, 1998). It might be beneficial to augment training by providing contact information on other training participants, encouraging trainees to communicate and interact following the training session. This could be done on strictly a voluntary basis where trainees could be asked to provide contact information to be listed on a roster of participants, thus minimizing potentially offending those wishing to keep their contact information private.

This information could be obtained prior to the training session and then the roster could be distributed during the session. In addition to obtaining contact information, trainers could also ask participants to voluntarily provide information related to key knowledge and skills that may further enhance the likelihood that trainees would contact others for the purpose of networking or benchmarking.

The perceived importance of training to improvements in productivity, sustained competitive advantage, and ultimately to firm performance has led governments in various countries to invest considerable resources into programs that encourage management and employee training in enterprises (Patton and Marlow, 2002). It is believed that training is a powerful agent to development of capabilities and to growth and profitability of the firm (Armstrong, 1998).

Koch and McGrath (1996) argued that firms that invest in employee training engage in formal performance appraisal, and link these to incentive compensation are likely to have lower employee turnover, higher productivity, and enhanced financial performance. Cosh, Duncan and Hughes (1997) suggested that training would enhance the survival rate of small firms. Similarly, Delaney and Huselid (1996) noted that the most successful firms provide employees more training than average. Ford and Wroten (1984) established a link between employee training and superior firm performance.

In addition, small business failure has been linked to poor management skills. It is argued that management training should greatly improve firm survival and performance (Ford & Wroten, 1984). Macrae (1991) established that major distinguishing factors between high-growth and low-growth small firms are the education, training, and experience of their senior managers. The existing literature tends to focus on management training (Heneman, Tansky & Camp, 2000) to the exclusion of other forms of employee training.

Few researchers have investigated the determinants of training in organizations and in all cases the dependent variable-training–was measured by a single variable, the training budget. Because informal training is often not accounted for in the firm’s books, the literature tends to be biased toward formal training. Employee training and development is an important programme that promotes employees in an organizational set up. The need for manpower development programmes cannot be overemphasized, as the application of acquired skills will go along way to ensure effective productivity in a world of work.

Many employees have failed in organizations because of lack of basic training which was not identified and provided for as an indispensable part of management function (Nwachukwu, 1988). As such, for an organization to realize the full potential of its employees, adequate employee training is necessary to ensure that the organization realizes its objectives. Olaniyan and Ojo (2008) note that training physically, socially, intellectually and mentally are very essential in facilitating not only the level of productivity but also the development of personnel in any organization.

The authors define training as a systematic development of knowledge, skills and attitudes required by employees to perform adequately on a given task or job. New entrants into organizations have various skills, though not all are relevant to organizational needs. Training and development are required for staff to enable them work towards taking the organization to its expected destination. Training Quality and Performance Employee performance is an important building block of an organization and factors which lay the foundation for high performance must be analyzed by the organizations.

Since every organization cannot progress by one or two individual’s effort, it is collective effort of all the members of the organization. Performance is a major multidimensional construct aimed to achieve results and has a strong link to strategic goals of an organization (Mwita, 2000). Managers at all the levels have to input their efforts and make maximum use of their abilities which sometimes are produced under supervision or without it. However, there are many expectations from managers working for an organization.

These expectations are sometimes fulfilled but in some situations these managers may be running to their boss for guidance. Therefore, the managers must be developed so that they can think and work on their own and fulfill their responsibilities innovatively, while understanding and foreseeing the market and business situations. Consequently question arises that how an employee can work more efficiently and effectively to increase the productivity and growth of an organization.

William Edward Deming, one of the quality Gurus defines quality as a predictable degree of uniformity and dependability at low costs and suitable to the market, he advises that an organisation should focus on the improvement of the process as the system rather than the work is the cause of production variation (Heyes, 2000) Many service organisations have embraced this approach of quality assurance by checking on the systems and processes used to deliver the end product to the consumer.

Essentially this checks on; pre-sale activities which encompass the advice and guidance given to a prospective client, customer communications ( how well the customers are informed of the products and services, whether there are any consultancy services provided to help the customers assess their needs and any help line available for ease of access to information on products), the speed of handling a client’s transactions and processing of claims, the speed of handling customers calls and the number of calls abandoned or not answered, on the selling point of Products/Services a customer would be interested to know about the opening hours of the organization, the convenience of the location and such issues (Lee, Lee & Pennings, 2005). This is only possible when employees are well trained and developed to ensure sustainability of the same.

Heyes (2000) stated that an organization should commit its resources to a training activity only if, in the best judgment of managers, the training can be expected to achieve some results other than modifying employee behaviour. It must support some organizational and goals, such as more efficient producer or distribution of goods and services, product operating costs, improved quality or more efficient personal relations is the modification of employees behaviour affected through training should be aimed at supporting organization objectives. According to Armstrong and Baron (2005) all organizations are concerned with what should be done to achieve sustainable high levels of performance through people. This means giving close attention on how individual can best be motivated through such means as incentives, rewards, leadership and training.

The aim is to develop motivation processes and work environment that will help to ensure that individuals deliver results in accordance with the expectation of management. For current employees whose job performance is not satisfactory. It may be that some type of additional training can help to bring them up to pair. Such training needs may be experienced with employees or with group of employees or individual who need additional training it is necessary to determine what they need. According to Heyes (2000), Training can only add value results if there is an opportunity for added value. Either the business is not performing effectively because people are not performing, or there is a market opportunity, which can be exploited but requires some new training or development.

Training ensures that greater efficiency is achieved through the production of goods and services with a realistic profit margin in so doing the organization is assured of its survival in the market and in the sector as a whole (Tzafrir, 2005). The quality of employees and their development through training are major factors in determining long-term profitability and optimum performance of organizations. To hire and keep quality employees, it is good policy to invest in the development of their skills, knowledge and abilities so that individual and ultimately organizational productivity can increase. Traditionally, training is given to new employees only. This is a mistake as ongoing training for existing employees helps them adjust rapidly to changing job requirements.

Organizations that are committed to quality invest in training of its employees (Evans & Lindsay 1999). According to Evans and Lindsay (1999), Xerox Business Products and Systems invest over $125 million in quality training. Motorola & Texas Instruments provide at least 40 hours of training to every employee quarterly. A complete employee training program includes a formal new hire training program with an overview of the job expectations and performance skills needed to perform the job functions (Odekunle, 2001). A new hire training program provides a fundamental understanding of the position and how the position fits within the organizational structure.

The more background knowledge the new associate has about how one workgroup interrelates with ancillary departments, the more the new associate will understand his or her impact on the organization. Models for Measuring the Effectiveness of Training Measuring the training effectiveness should be an important asset for the organizations. There are some criteria for measuring the success of training; direct cost, indirect cost, efficiency, performance to schedule, reactions, learning, behavior change, performance change (Sheppard, 1999). The Kirkpatrick’s Four Level Approach It was created by Donald Kirkpatrick in 1959, at the time; he was a professor of marketing at the University of Wisconsin.

It is still one of the most widely used approaches. His four level of evaluation are: reaction – a measure of satisfaction, learning – a measure of learning, behavior – a measure of behavior change and results- a measure of results (Phillips, 1997:39). Kirkpatrick model is now nearly 45 years old. Its elegant simplicity has caused it to be the most widely used methods of evaluation training programs. ASTD’s (American Society for Training Development) survey, which reports feedback from almost 300 Human Resource executives and managers, revealed that 67% of organizations that conduct evaluations use the Kirkpatrick model (Stone and Watson, 1999). Table 2. : Kirkpatrick Four Levels of Evaluation |Level 1: Reaction |Were the participants pleased? | | |What do they plan to do with what they learned? | |Level 2: Learning |What skills, knowledge, or attitudes have change? By | | |how much? | |Level 3: Behavior |Did the participants change their behavior based on | | |what was learned in the program? |Level 4: Results |Did the change in behavior positively affect the | | |organization? | Resource: Stone J. and Watson V. , (1999), Evaluation of Trainig, www. ispi-atlanta. org Kaufman’s Five Level of Evaluation Some researchers, recognizing some shortcomings of Kirkpatrick’s four level approach, have attempted to modify and add to this basic framework. Kaufman offers one such presentation. Kaufman has expanded the definition of Level 1 and added a fifth level addressing societal issues (Philips, 1997:40). At level 1, the factor of the concept enabling addresses the availability of various resource inputs necessary for a successful intervention.

At Level 5 is the evaluation of societal and client responsiveness, and consequences in payoff. This moves ev

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Case Study: Bankruptcy and the Bible

Case Study: Your long-time friend Carl comes to you with a serious problem in his life. He is a believer, and he wants your advice. For years he and his family have lived above their means. They did this by continually refinancing their house and rolling their credit card and other debt onto their home mortgage. However, now that real estate prices are no longer rising but actually falling, Carl can’t refinance anymore and can’t pay his monthly bills as they come due. He is in a real credit crisis. His creditors are calling him threatening lawsuits, garnishments, and other unpleasant things.

One of his friends at work said that he should file bankruptcy. He comes to you for advice from a Christian perspective. In particular, he wants to know: 1. Does the Bible forbid him to file bankruptcy? 2. Does the Bible forbid borrowing altogether? If not, when is it permissible to borrow money? Use the words “Forbids” or “Does not Forbid” in the subject line of your discussion board post, depending upon your conclusion. Do not use attachments as these are cumbersome and inhibit the discussion process. Suggested Readings:

Read and consider these and other Bible verses that relate to borrowing, lending, and lawsuits: Proverbs 17:14, Proverbs 20:3, Proverbs 25:8-10, 1 Corinthians 6:1-8, Matthew 5:22-26, Matthew 5:33-37, Matthew 5:38-42, Psalm 37:21, Ecclesiastes 5:4-5, Colossians 3:9, Ephesians 4:22, Ephesians 4:25, Leviticus 25, Deuteronomy 15:1-18, Psalm 37:26, Psalm 112:5, Proverbs 19:17, Proverbs 22:7, Deuteronomy 24:6, Deuteronomy 24:10-13, Deuteronomy 24:17, Exodus 22:25-27, Proverbs 6:1-5, and Proverbs 22:26-27. You may also want to consult some good commentaries and other study aids on some of the verses that seem particularly relevant to you.

Proverbs 17:14 New International Version (NIV) 14 Starting a quarrel is like breaching a dam; so drop the matter before a dispute breaks out. 3 It is to one’s honor to avoid strife, but every fool is quick to quarrel. 8 do not bring hastily to court, for what will you do in the end if your neighbor puts you to shame? 9 If you take your neighbor to court, do not betray another’s confidence, 10 or the one who hears it may shame you and the charge against you will stand. 1 Corinthians 6:1-8 New International Version (NIV) Lawsuits Among Believers If any of you has a dispute with another, do you dare to take it before the ungodly for judgment instead of before the Lord’s people? 2 Or do you not know that the Lord’s people will judge the world? And if you are to judge the world, are you not competent to judge trivial cases? 3 Do you not know that we will judge angels? How much more the things of this life! 4 Therefore, if you have disputes about such matters, do you ask for a ruling from those whose way of life is scorned in the church? 5 I say this to shame you. Is it possible that there is nobody among you wise enough to judge a dispute between believers? But instead, one brother takes another to court—and this in front of unbelievers! 7 The very fact that you have lawsuits among you means you have been completely defeated already. Why not rather be wronged? Why not rather be cheated? 8 Instead, you yourselves cheat and do wrong, and you do this to your brothers and sisters. Matthew 5:22-26 New International Version (NIV) 22 But I tell you that anyone who is angry with a brother or sister[a][b] will be subject to judgment. Again, anyone who says to a brother or sister, ‘Raca,’[c] is answerable to the court. And anyone who says, ‘You fool! ’ will be in danger of the fire of hell. 3 “Therefore, if you are offering your gift at the altar and there remember that your brother or sister has something against you, 24 leave your gift there in front of the altar. First go and be reconciled to them; then come and offer your gift. 25 “Settle matters quickly with your adversary who is taking you to court. Do it while you are still together on the way, or your adversary may hand you over to the judge, and the judge may hand you over to the officer, and you may be thrown into prison. 26 Truly I tell you, you will not get out until you have paid the last penny. Matthew 5:33-37 New International Version (NIV) Oaths 3 “Again, you have heard that it was said to the people long ago, ‘Do not break your oath, but fulfill to the Lord the vows you have made. ’ 34 But I tell you, do not swear an oath at all: either by heaven, for it is God’s throne; 35 or by the earth, for it is his footstool; or by Jerusalem, for it is the city of the Great King. 36 And do not swear by your head, for you cannot make even one hair white or black. 37 All you need to say is simply ‘Yes’ or ‘No’; anything beyond this comes from the evil one. [a] Matthew 5:38-42 New International Version (NIV) Eye for Eye 38 “You have heard that it was said, ‘Eye for eye, and tooth for tooth. [a] 39 But I tell you, do not resist an evil person. If anyone slaps you on the right cheek, turn to them the other cheek also. 40 And if anyone wants to sue you and take your shirt, hand over your coat as well. 41 If anyone forces you to go one mile, go with them two miles. 42 Give to the one who asks you, and do not turn away from the one who wants to borrow from you. Psalm 37:21 New International Version (NIV) 21 The wicked borrow and do not repay, but the righteous give generously; Ecclesiastes 5:4-5 New International Version (NIV) 4 When you make a vow to God, do not delay to fulfill it.

He has no pleasure in fools; fulfill your vow. 5 It is better not to make a vow than to make one and not fulfill it. Colossians 3:9 New International Version (NIV) 9 Do not lie to each other, since you have taken off your old self with its practices Ephesians 4:22 New International Version (NIV) 22 You were taught, with regard to your former way of life, to put off your old self, which is being corrupted by its deceitful desires; Ephesians 4:25 New International Version (NIV) 25 Therefore each of you must put off falsehood and speak truthfully to your neighbor, for we are all members of one body.

Leviticus 25 New International Version (NIV) The Sabbath Year 25 The LORD said to Moses at Mount Sinai, 2 “Speak to the Israelites and say to them: ‘When you enter the land I am going to give you, the land itself must observe a sabbath to the LORD. 3 For six years sow your fields, and for six years prune your vineyards and gather their crops. 4 But in the seventh year the land is to have a year of sabbath rest, a sabbath to the LORD. Do not sow your fields or prune your vineyards. 5 Do not reap what grows of itself or harvest the grapes of your untended vines. The land is to have a year of rest. Whatever the land yields during the sabbath year will be food for you—for yourself, your male and female servants, and the hired worker and temporary resident who live among you, 7 as well as for your livestock and the wild animals in your land. Whatever the land produces may be eaten. The Year of Jubilee 8 “‘Count off seven sabbath years—seven times seven years—so that the seven sabbath years amount to a period of forty-nine years. 9 Then have the trumpet sounded everywhere on the tenth day of the seventh month; on the Day of Atonement sound the trumpet throughout your land. 0 Consecrate the fiftieth year and proclaim liberty throughout the land to all its inhabitants. It shall be a jubilee for you; each of you is to return to your family property and to your own clan. 11 The fiftieth year shall be a jubilee for you; do not sow and do not reap what grows of itself or harvest the untended vines. 12 For it is a jubilee and is to be holy for you; eat only what is taken directly from the fields. 13 “‘In this Year of Jubilee everyone is to return to their own property. 14 “‘If you sell land to any of your own people or buy land from them, do not take advantage of each other. 5 You are to buy from your own people on the basis of the number of years since the Jubilee. And they are to sell to you on the basis of the number of years left for harvesting crops. 16 When the years are many, you are to increase the price, and when the years are few, you are to decrease the price, because what is really being sold to you is the number of crops. 17 Do not take advantage of each other, but fear your God. I am the LORD your God. 18 “‘Follow my decrees and be careful to obey my laws, and you will live safely in the land. 9 Then the land will yield its fruit, and you will eat your fill and live there in safety. 20 You may ask, “What will we eat in the seventh year if we do not plant or harvest our crops? ” 21 I will send you such a blessing in the sixth year that the land will yield enough for three years. 22 While you plant during the eighth year, you will eat from the old crop and will continue to eat from it until the harvest of the ninth year comes in. 23 “‘The land must not be sold permanently, because the land is mine and you reside in my land as foreigners and strangers. 4 Throughout the land that you hold as a possession, you must provide for the redemption of the land. 25 “‘If one of your fellow Israelites becomes poor and sells some of their property, their nearest relative is to come and redeem what they have sold. 26 If, however, there is no one to redeem it for them but later on they prosper and acquire sufficient means to redeem it themselves, 27 they are to determine the value for the years since they sold it and refund the balance to the one to whom they sold it; they can then go back to their own property. 8 But if they do not acquire the means to repay, what was sold will remain in the possession of the buyer until the Year of Jubilee. It will be returned in the Jubilee, and they can then go back to their property. 29 “‘Anyone who sells a house in a walled city retains the right of redemption a full year after its sale. During that time the seller may redeem it. 30 If it is not redeemed before a full year has passed, the house in the walled city shall belong permanently to the buyer and the buyer’s descendants. It is not to be returned in the Jubilee. 1 But houses in villages without walls around them are to be considered as belonging to the open country. They can be redeemed, and they are to be returned in the Jubilee. 32 “‘The Levites always have the right to redeem their houses in the Levitical towns, which they possess. 33 So the property of the Levites is redeemable—that is, a house sold in any town they hold—and is to be returned in the Jubilee, because the houses in the towns of the Levites are their property among the Israelites. 34 But the pastureland belonging to their towns must not be sold; it is their permanent possession. 5 “‘If any of your fellow Israelites become poor and are unable to support themselves among you, help them as you would a foreigner and stranger, so they can continue to live among you. 36 Do not take interest or any profit from them, but fear your God, so that they may continue to live among you. 37 You must not lend them money at interest or sell them food at a profit. 38 I am the LORD your God, who brought you out of Egypt to give you the land of Canaan and to be your God. 39 “‘If any of your fellow Israelites become poor and sell themselves to you, do not make them work as slaves. 0 They are to be treated as hired workers or temporary residents among you; they are to work for you until the Year of Jubilee. 41 Then they and their children are to be released, and they will go back to their own clans and to the property of their ancestors. 42 Because the Israelites are my servants, whom I brought out of Egypt, they must not be sold as slaves. 43 Do not rule over them ruthlessly, but fear your God. 44 “‘Your male and female slaves are to come from the nations around you; from them you may buy slaves. 5 You may also buy some of the temporary residents living among you and members of their clans born in your country, and they will become your property. 46 You can bequeath them to your children as inherited property and can make them slaves for life, but you must not rule over your fellow Israelites ruthlessly. 47 “‘If a foreigner residing among you becomes rich and any of your fellow Israelites become poor and sell themselves to the foreigner or to a member of the foreigner’s clan, 48 they retain the right of redemption after they have sold themselves.

One of their relatives may redeem them: 49 An uncle or a cousin or any blood relative in their clan may redeem them. Or if they prosper, they may redeem themselves. 50 They and their buyer are to count the time from the year they sold themselves up to the Year of Jubilee. The price for their release is to be based on the rate paid to a hired worker for that number of years. 51 If many years remain, they must pay for their redemption a larger share of the price paid for them. 52 If only a few years remain until the Year of Jubilee, they are to compute that and pay for their redemption accordingly. 3 They are to be treated as workers hired from year to year; you must see to it that those to whom they owe service do not rule over them ruthlessly. 54 “‘Even if someone is not redeemed in any of these ways, they and their children are to be released in the Year of Jubilee, 55 for the Israelites belong to me as servants. They are my servants, whom I brought out of Egypt. I am the LORD your God. Deuteronomy 15:1-18 New International Version (NIV) The Year for Canceling Debts 15 At the end of every seven years you must cancel debts. This is how it is to be done: Every creditor shall cancel any loan they have made to a fellow Israelite. They shall not require payment from anyone among their own people, because the LORD’s time for canceling debts has been proclaimed. 3 You may require payment from a foreigner, but you must cancel any debt your fellow Israelite owes you. 4 However, there need be no poor people among you, for in the land the LORD your God is giving you to possess as your inheritance, he will richly bless you, 5 if only you fully obey the LORD your God and are careful to follow all these commands I am giving you today. For the LORD your God will bless you as he has promised, and you will lend to many nations but will borrow from none. You will rule over many nations but none will rule over you. 7 If anyone is poor among your fellow Israelites in any of the towns of the land the LORD your God is giving you, do not be hardhearted or tightfisted toward them. 8 Rather, be openhanded and freely lend them whatever they need. 9 Be careful not to harbor this wicked thought: “The seventh year, the year for canceling debts, is near,” so that you do not show ill will toward the needy among your fellow Israelites and give them nothing.

They may then appeal to the LORD against you, and you will be found guilty of sin. 10 Give generously to them and do so without a grudging heart; then because of this the LORD your God will bless you in all your work and in everything you put your hand to. 11 There will always be poor people in the land. Therefore I command you to be openhanded toward your fellow Israelites who are poor and needy in your land. Freeing Servants 12 If any of your people—Hebrew men or women—sell themselves to you and serve you six years, in the seventh year you must let them go free. 3 And when you release them, do not send them away empty-handed. 14 Supply them liberally from your flock, your threshing floor and your winepress. Give to them as the LORD your God has blessed you. 15 Remember that you were slaves in Egypt and the LORD your God redeemed you. That is why I give you this command today. 16 But if your servant says to you, “I do not want to leave you,” because he loves you and your family and is well off with you, 17 then take an awl and push it through his earlobe into the door, and he will become your servant for life.

Do the same for your female servant. 18 Do not consider it a hardship to set your servant free, because their service to you these six years has been worth twice as much as that of a hired hand. And the LORD your God will bless you in everything you do. Psalm 37:26 New International Version (NIV) 26 They are always generous and lend freely; their children will be a blessing. [a] Psalm 112:5 New International Version (NIV) 5 Good will come to those who are generous and lend freely, who conduct their affairs with justice. Proverbs 19:17 New International Version (NIV) 7 Whoever is kind to the poor lends to the LORD, and he will reward them for what they have done. Proverbs 22:7 New International Version (NIV) 7 The rich rule over the poor, and the borrower is slave to the lender. Deuteronomy 24:6 New International Version (NIV) 6 Do not take a pair of millstones—not even the upper one—as security for a debt, because that would be taking a person’s livelihood as security. Deuteronomy 24:10-13 New International Version (NIV) 10 When you make a loan of any kind to your neighbor, do not go into their house to get what is offered to you as a pledge. 1 Stay outside and let the neighbor to whom you are making the loan bring the pledge out to you. 12 If the neighbor is poor, do not go to sleep with their pledge in your possession. 13 Return their cloak by sunset so that your neighbor may sleep in it. Then they will thank you, and it will be regarded as a righteous act in the sight of the LORD your God. Deuteronomy 24:17 New International Version (NIV) 17 Do not deprive the foreigner or the fatherless of justice, or take the cloak of the widow as a pledge. Exodus 22:25-27 New International Version (NIV) 5 “If you lend money to one of my people among you who is needy, do not treat it like a business deal; charge no interest. 26 If you take your neighbor’s cloak as a pledge, return it by sunset, 27 because that cloak is the only covering your neighbor has. What else can they sleep in? When they cry out to me, I will hear, for I am compassionate. Proverbs 6:1-5 New International Version (NIV) Warnings Against Folly 6 My son, if you have put up security for your neighbor, if you have shaken hands in pledge for a stranger, 2 you have been trapped by what you said, nsnared by the words of your mouth. 3 So do this, my son, to free yourself, since you have fallen into your neighbor’s hands: Go—to the point of exhaustion—[a] and give your neighbor no rest! 4 Allow no sleep to your eyes, no slumber to your eyelids. 5 Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler. Proverbs 22:26-27 New International Version (NIV) Saying 4 26 Do not be one who shakes hands in pledge or puts up security for debts; 27 if you lack the means to pay, your very bed will be snatched from under you.

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Bank Bailout 2008

Bank Bailout Outline I. Introduction II. Background III. Opposition’s point 1, refute, 1st support for thesis. a. Credit Card Act of 2009 b. No Change at all, Banks still operating the same way IV. Opposition’s point 2, refute, 2nd support for thesis. a. Creation of TARP b. $12. 2 trillion dollars of tax dollars were spent wrong c. TARP allowed many banks to allow credit again d. A majority of banks have paid back TARP money e. After TARP, Economy boosted V. Opposition’s point 3, refute, 3rd support for thesis a. Toxic assets cannot be removed easily b. Government takes more cost, then expects c.

Economy will decline with removal of assets VI. 4th support for thesis a. Increased national debt b. Politicians were forced to sign this bill c. No solving of problems “Let’s hope we are all wealthy and retired by this house of cards falters” (Bloomberg, 2007). The credit crisis is known as the “House of Cards”, for years the banking industry has transformed many American lives, which has resulted in a troublesome economy. Many factors led to the credit crisis, such as the rise and fall of the housing market, and inaccurate credit ratings helped to create the sub-prime mortgage crisis (Issues & Controversies, 2010).

Low interest rates developed easy credit, in which people could get a mortgage and credit cards based on inaccurate credit ratings with the creation of sub-prime mortgages. People have the ability to own a home, with no down payment or fixed income. In August of 2007, the United States began a loss of confidence in securitized mortgages, which resulted in the Federal Reserve injecting $20 trillion dollars into the financial markets to ease the situation (“Obama Sends Warning to Big Banks, 2010).

The most important question to be answered in the decade is “How a loss of $500 billion dollars from the sub-prime mortgage resulted in a $20 trillion dollar loss in equity values and an entire shock to the world’s financial system” (Woellert & Kopecki, 2007). The United States government should not have given the financial institutions bailout money, because financial institutions using loop holes in the system to take advantage of their clients, financial institutions operations have stayed the same, and the government’s belief of a tree market economy goes against the bailout.

The credit crisis is a “worldwide financial fiasco, which resulting from sub-prime mortgages, Collateralized Debit Obligations, Frozen credit markets, and credit default swaps” (Jarvis, 2009). The credit crisis brings two people together, people on Main Street and investors. The people on Main Street represent their mortgages or houses, while investors represent their money, which also represents big institutions such as pension funds, insurance companies, mutual funds; sovereign funds (Jarvis, 2009). These groups brought through the financial system, composed of banks and brokers on Wall Street.

As a result of the September 11th attack, Chairman Allen Greenspan lowered interest rates only to 1%, to allow credit to flow; however, investors have a very low return on investment (Snow, 2008). By lowering interest rates, it allows for banks to only borrow money from the Federal Government for 1% plus the surpluses from the Asian and Middle East market, which makes borrowing money easy for banks and to allow leverage (Adding up the Government’s Total Bailout Tab, 2009). The definition of leverage is, “borrowing money to amplify the outcome of a deal” and is a major way banks make their money (Princeton University, 2010).

Wall Street takes out a majority of loans and uses leverage to their advantage, and a heavy flow of capital comes in. In which return, they pay back their original investment. The investors notice that Wall Street is making money very fast, and they want to create a new product to sell to Wall Street. The mortgage connects the home buyer with a mortgage lender on Wall Street who gives them a mortgage, which is great because housing prices throughout America have been rising (“Bailed out banks”, 2010).

The mortgage lender gets a call from an investment banker who wants to buy the mortgage; and the lender sells it to him, and the investment brokers buys thousands of mortgages. Every month the investment banker gets the payments from all the mortgages that he purchased from the box and cuts the box into three slices “Safe, Ok and Risky”, and then he packs the slices into the box and calls it a Collateralized debt obligation or “CDO” (Woellert & Kopecki, 2007).

However, greed has risen to the investment banker and wants’ more mortgages; however, the lender does not have any more mortgages to sell, because everyone who has qualified for a mortgage already has one; and the birth of the sub-prime mortgage is born. With a standard loan, the homeowner had to prove his worth of a home, such as a job, good standing citizen, and assets. However, with a subprime mortgage, it was basically like free money. The person did not have to state their income, nor prove that you had a job.

The investment banker and the lender are taking a risk, because if a home owner defaults on their mortgage, the lender gets the house and sells the house for a profit because home values have been increasing (Issues & Controversies, 2010). While home values have been increasing, American incomes have been plummeting for years; and because of sub-prime mortgages, the person did not have to prove income, a person with a $30 thousand dollar income; could own a $300 thousand dollar home. Many people defaulted on their mortgages, and foreclosures have been on the rise. In the United States, foreclosures were up 81% in 2008 and up 225% from 206”, which equals out to 19 per 1,000 households (CBS News, 2008). Due to there was a huge increase in foreclosures, instead of housing prices increasing; the houses values decreased in value very quickly and resulted in more foreclosures. A $300 thousand dollar mortgages was now only worth $75 thousand dollars. So all the mortgages that was in the investment banker CDO, now are worthless, and no one wants’ to take the CDO, and now the CDO is acting like a bomb (Roney, 2007).

The investment banker is now panicking because he borrowed millions of dollars to buy the mortgage, and now he cannot get rid of it; however he is not the only one. Thousands of investment bankers throughout the world have CDO’s on their hand (Bailed out banks, 2010). In result the world’s financial system has become frozen, and everyone starts going bankrupt. As a result of the failure, the United States government rolls out a new program called Troubled Asset Relief Program (TARP) to prevent another bank failure.

Under the bank bailout, creation of new legislation to protect the consumer has rapidly increased, and supporters of the bank bailout point to the Credit Card Act of 209. Not only were subprime mortgages affected, but due to the freeze in the credit market in the United States government needed a way to regulate the credit card industry, but also to stimulate spending. Under the Credit Card Act of 2009, they require the financial institutions to give the cardholders 45 day’s notice of any interest rate change and financial institutions are prohibited from using misleading terms such as “prime or fixed rate” (The White House, 2009).

With this legislation in place, it protects the consumer from many of the scams that the mortgage industry used as bait to get clients into buying houses they could not afford, using the subprime mortgages (Roney, 2007). But also it allows for Congress to embrace new regulations placed on the financial institutions. The Credit Card Act of 2009 that has become part of the famous bank bailout, however, it has been shown to protect the consumer, and Congress will regulate the new rules placed on financial institutions.

For example, “there is no cap on the interest rate the credit card companies can charge”, and while credit card companies cannot increase you interest rate but only if you are late on a payment, “However future purchases interest rates can be raised with no reason” (White, 2010). The credit card companies have the ability to raise the interest rate on any purchases, while they must still notify you of the higher interest rate, the ballooning of the interest rate can take place at any time.

This is exactly the same measures the financial institutions have used to misinform their consumers and “kick them when they are down” and “corrupt the middle class of America” (White, 2010). How the subprime mortgage boomed, had to come from the terms that many of the average consumers cannot understand, and a major aftermath of the subprime/credit crisis, occurred when many people defaulted on their homes and credit cards (Roney, 2007).

Then the mortgage and home will not exist for the family any more, and the credit card companies will balloon their interest rate enough so that the card holders will not be able to pay their credit card/mortgage. In which then the financial institution hounds them and attacks them at their core roots and even calls other family members to alert them of the card holder financial problems because they cannot pay their bills. The banking and financial institution have not taken any actions to prevent another credit crisis from happening again.

Supporters of the bank bailout, commonly referred to as TARP, argue that the bailout wiped all the bad toxic assets (CDO’s) which were collected as result of the credit crisis and prevented the assets from hurting the financial institutions. The major recipients were Freddie Mac; and Fannie Mae. Both were government owned enterprises which bought a majority of the sub-prime mortgages (Roney, 2007). Removing the bad assets from the financial institutions will have a positive effect on the economy because it allows banks to start lending again and unfreeze the markets.

Under TARP, some mortgages would require the government to rewrite some of the effected loans, effectively putting more Americans into homes that they will be able to afford and by rewriting the loans also increase the standard of living. John Douglas, general counsel at the FDIC, said, “It doesn’t make sense to give the authority to anybody else but the FDIC”; he goes on to say “That’s what the FDIC does, it takes the bad assets out of the banks and manages them and sells them” (Vekshin & Schmidt, 2009). However, the supporters of the bank bailout do not represent correct/valid points/facts.

In a study by the IMF of the 124 banking crisis, they have concluded: Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance. Valencia & Laeven, 2008) As a result of the IMF study, it has concluded that removing the bad toxic assets from the banks could actually hurt the financial institutions and a system as a whole could freeze the credit markets again with a result of an economic decline, instead of an economic incline. Also there is no definition of a troubled market or loan. If the government wants to rewrite troubled mortgages or loans, there are no set criteria to say whether a mortgage or loan should be taken by the government and given to the troubled family.

Another point, as Steward said, “The only way for this program to work is for enough of the bad mortgages/loans to be purchased to connivance lenders that the problem mortgages cannot hurt the system, or to put in simple terms, the government has to purchase enough mortgages/loans to inspire intra- institution (Stewart, 2008) Furthermore, the institutions will sell the assets that will remain depressed in value; and “no one is going to sell a asset that has a higher chance of making the institution money (Obama Sends Warning to Big Banks, 2010). In result, under TARP the government has a high probability of taking a majority of the loss.

With the bank bailout, the economy will decline, and the government will take a great loss of the bank bailout. Supporters of the bank bailout will say that if the government did not step in and inject $20 trillion dollars into the market, an economic collapse could have happened and set America into another Great Depression. A heavy incline of unemployment; foreclosures were through the roof, a major decline in incomes (Solomon, Enrich, & Hilsenrath, 2009). America was becoming a very sick nation, and the bank bailout would help the economy and stimulate the financial institutions to help start lending and unfreeze the credit market.

As one writer wrote, “there was at no time better to inject the financial institutions at this time, if they collapse it may be the sign of the apocalypse” (Bailed out banks, 2010)/ If there was no bank bailout, there is a major chance that this will be a sign of the apocalypse because the United States drives the world and if the major financial institutions such as Bank of America or Merrill Lynch fails then the world economy could ultimately send the world in to another Great Depression.

The major reason that the American government should not have passed the bank bailout was the cost to the government. Under the Bush administration, the national debit doubled to a record high $10 trillion dollars (Solomon, Enrich, & Hilsenrath, 2009). There are more programs that the government has to pay for such as Social Security. Many economists call this the “polluter pays” which is defined as “polluters must pay for the cost of cleaning it up” (Princeton University, 2010).

When the financial industry is bailed out of disasters, which a majority of the time throughout history, they have created those disasters. If the banking industry feels like they can be bailed out every time they make a major mistake, then the American people will pay because the bank bailout is directly connected to the taxpayer’s funds (Obama sends warning to Big Banks, 2010).

A price tag of $700 billion dollar bailout has hidden costs which can go high as $3 trillion dollars, which can “be the shortfall between the economies potential output and its actual output from the crisis” (Issues & Controversies, 2010). Another factor in the bank bailout is the morality, because the banks do not pay the costs that are imposed on a world society, which the tax payers pay directly into the banks and then the banks pay back into the government. Also, the political had a major role in deciding to pass the bank bailout.

A senator said, “We had no choice. We had a gun pointed at our heads. Without the bailout, things would have been even worse” (Woellert & Kopecki, 2007). While politicians did not have an actual gun to their head, figuratively speaking because they had a oversight on “saving the banks and shareholders” or “have saved the banks but let the bankers and shareholders go” because of the final tap that American tax payer will have to pay to the bailout the banks that created this mess (Solomon, Enrich, & Hilsenrath, 2009).

The bank bailout was a major mistake in the evolution of the financial world because it did not solve any problems; people can still be charged higher interest rates on their credit cards/mortgages. With TARP, there is no true removal of the bad assets that caused the credit crisis to form the bank bailouts; it only hurts the government because it has to take on the debt. Truly, we have stroke the core of the American people with the credit crisis, but at the same time the financial world has been given more powers and in a free market enterprise, the credit crisis can happen again at any moment.

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Banking Formalities

BANKING FORMALITIES : SUCH AS NEGOTIATION OF DOCUMENTS Negotiation means the standard procedures that bank performs which includes checking of the documents and giving value to the seller. The issuing bank may issue the LC available by negotiation with a nominated bank or it may allow the LC to be freely negotiated with any bank. In the first case, the beneficiary, that is the seller, has to present the documents only to that bank, which is the nominated bank.

Nevertheless, the nominated bank is not bound to negotiate if it has not undertaken a separate payment obligation to the seller. The nominated bank may simply refuse to negotiate the documents drawn under the LC. This is because, by having been nominated by the issuing bank, it does not constitute and undertaking to negotiate. If, however, the nominated bank has added its confirmation to the LC at the request of the issuing bank, thereby undertaking a separate payment obligation to the seller, then it has to honour its undertaking and pay for the documents drawn under the LC if they are in order (Article 9b).

LC which does not nominate any bank is normally available for negotiation with any bank in the country of the seller which is willing to negotiate the documents. For the information of all traders, there are 4 types of negotiation practiced by banks around the world. They are: 1. Negotiation without recourse 2. Negotiation with recourse 3. Negotiation against indemnity 4. Negotiation under reserve Let me explain Negotiation without recourse first and the rest at a later posting.

A seller may present his documents drawn under LC directly to either a) The issuing Bank (bank that issues the LC) or b) The confirming bank (bank that adds its confirmation at the request of the issuing bank) or c) To his own bank If the seller chooses to present the documents directly either to the ISSUING BANK or to the CONFIRMING BANK, these banks make payment WITHOUT RECOURSE to him. Meaning, the payment that has been paid to the seller shall not in any way become claimable by these banks in the event the documents are found not in order after making such payment.

These banks cannot have recourse to the seller because by issuing or confirming the LC, they have taken upon themselves the risk that the party from whom reimbursement is to be obtained may become insolvent. I hope this would give traders a general idea of how the LC operates and the implications to buyer and seller. BANKING FORMALITIES :OBTAINING PACKING CREDIT AND POST SHIPMENT FINANCE Packing Credit : Overview Packing credit is a loan/ cash credit facility sanctioned to an exporter in the Pre-Shipment stage.

This loan facilitates the exporter to purchase raw materials at competitive rates and manufacture or produce goods according to the requirement of the buyer and organize to have it packed for onward export.. The lending institutions seek a Letter of Credit opened in favour of the exporter from the overseas buyer along with the irrevocable (cannot be canceled once drawn) Purchase Order favouring the exporter. Packing Credit facility will cover all the working capital needs of the exporter including raw materials, wages, packing costs and all pre-shipment costs.

Packing credit is available for generally a period of 90 days and the exporter has to pay lower rate of interest compared to traditional Overdraft or Cash Credit facility. Exporters use this facility so they can bid the most competitive price for export thus gaining more business opportunities for export. Packing Credit : Documents The borrower and/or the guarantors have to provide the following documents to the banks or the lending institutions while submitting Packing credit Application. Certain documents may be demanded by the bank or the lending institutions in post sanction phase or on periodical basis. Address Proof : Latest Electricity/Telephone Bill or Receipt of Maintenance Charges or Valid Passport or Voter’s Identity Card or Purchase/Lease Deed/ Leave & License Agreement of Residence or Office Premises. * Identity Proof : Valid Passport, PAN Card, Voter’s Card, Any other photo identification issued by Government Agencies. * Business Proof : VAT/CST Registration No. or MIDC Agreement or SSI Permanent Registration Certificate or Warehouse Receipts or Shop & Establishment Act Certificate or Copy of Lease Agreement along with the latest Rent paid Receipt. * Business Profile on Company’s Letterhead. Partnership deed in case of partnership firms. * Certificate of incorporation, Date of Commencement of Business and Memorandum of Title Deeds, Form 32 in for Addition or Deletion of Directors in case of companies. * Last three years Trading, Profit & Loss A/c. and Balance Sheets (duly signed by a Chartered Accountant wherever applicable). * Last one years’ Bank statement of the Firm. * If existing loan, then sanctioning letter and repayment schedule of the same. * Firm/Company’s PAN Cards. * Individual Income Tax Returns of the Individual/Partners/Directors for last three years. Last one years’ Bank statement of Individuals, Partners, Directors . * SEBI formalities in case of listed companies. * Share Holding pattern of Directors duly certified by a Chartered Accountant. * List of the Existing Directors of the company from the Registrar of the Companies. Packing Credit : Process 1. Personal interview /discussions is held with the customers by the bank’s officials. 2. Bank’s Field Investigation team visits the business place/work place of the applicant. (All the documents submitted are verified by the bank with the originals so as to ensure the authenticity of the same. 3. Bank verifies the track record of the applicant with the common information sharing bureau (CIBIL). 4. In case of fresh projects the bank analyses the back ground of the applicant/firm/company and the Technical feasibility/financial viability of the project based on various parameters and also the existing market conditions. 5. Depending on the size of the project the file is put up for sanction to the appropriate level of authority. SANCTION AND DISBURSEMENT : 1. On approval/sanction, the sanction letter ,is issued specifying the terms and conditions for the disbursement of the loan.

The acceptance to the terms of sanction is taken From the Applicant. 2. The processing charges as specified by the bank have to be paid to proceed further with the disbursement procedure. 3. The documentation procedure takes place viz. Legal opinion of various property documents and also the valuation reports. (Original Documents to title of the immovable assets are to be submitted) 4. All the necessary documents as specified by the legal dept. , according to the terms of sanction of the loan of the bank are executed.

Disbursement of the loan takes place after the Legal Dept. Certifies the Correctness of execution document Post shipment finance Pre-shipment is also referred as “packing credit”. It is working capital finance provided by commercial banks to the exporter prior to shipment of goods. The finance required to meet various expenses before shipment of goods is called pre-shipment finance or packing credit DEFINITION: Financial assistance extended to the exporter from the date of receipt of the export order till the date of shipment is known as pre-shipment credit.

Such finance is extended to an exporter for the purpose of procuring raw materials, processing, packing, transporting, warehousing of goods meant for exports. IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE: * To purchase raw material, and other inputs to manufacture goods. * To assemble the goods in the case of merchant exporters. * To store the goods in suitable warehouses till the goods are shipped. * To pay for packing, marking and labelling of goods. * To pay for pre-shipment inspection charges. * To import or purchase from the domestic market heavy machinery and other capital goods to produce export goods. To pay for consultancy services. * To pay for export documentation expenses. FORMS OR METHODS OF PRE-SHIPMENT FINANCE: 1. Cash Packing Credit Loan: In this type of credit, the bank normally grants packing credit advantage initially on unsecured basis. Subsequently, the bank may ask for security. 2. Advance Against Hypothecation: Packing credit is given to process the goods for export. The advance is given against security and the security remains in the possession of the exporter. The exporter is required to execute the hypothecation deed in favour of the bank. . Advance Against Pledge: The bank provides packing credit against security. The security remains in the possession of the bank. On collection of export proceeds, the bank makes necessary entries in the packing credit account of the exporter. 4. Advance Against Red L/C: The Red L/C received from the importer authorizes the local bank to grant advances to exporter to meet working capital requirements relating to processing of goods for exports. The issuing bank stands as a guarantor for packing credit. 5. Advance Against Back-To-Back L/C:

The merchant exporter who is in possession of the original L/C may request his bankers to issue Back-To-Back L/C against the security of original L/C in favour of the sub-supplier. The sub-supplier thus gets the Back-To-Bank L/C on the basis of which he can obtain packing credit. 6. Advance Against Exports Through Export Houses: Manufacturer, who exports through export houses or other agencies can obtain packing credit, provided such manufacturer submits an undertaking from the export houses that they have not or will not avail of packing credit against the same transaction. . Advance Against Duty Draw Back (DBK): DBK means refund of customs duties paid on the import of raw materials, components, parts and packing materials used in the export production. It also includes a refund of central excise duties paid on indigenous materials. Banks offer pre-shipment as well as post-shipment advance against claims for DBK. 8. Special Pre-Shipment Finance Schemes: * Exim-Bank’s scheme for grant for Foreign Currency Pre-Shipment Credit (FCPC) to exporters. * Packing credit for Deemed exports. SOME SCHEMES IN PRE-SHIPMENT STAGE OF FINANCE . PACKING CREDIT SANCTION OF PACKING CREDIT ADVANCES: There are certain factors, which should be considered while sanctioning the packing credit advances viz. 1. Banks may relax norms for debt-equity ratio, margins etc but no compromise in respect of viability of the proposal and integrity of the borrower. 2. Satisfaction about the capacity of the execution of the orders within the stipulated time and the management of the export business. 3. Quantum of finance. 4. Standing of credit opening bank if the exports are covered under letters of credit. 5.

Regulations, political and financial conditions of the buyer’s country. DISBURSEMENT OF PACKING CREDIT: After proper sanctioning of credit limits, the disbursing branch should ensure: To inform ECGC the details of limit sanctioned in the prescribed format within 30 days from the date of sanction. a)      To complete proper documentation and compliance of the terms of sanction i. e. creation of mortgage etc. b)      There should be an export order or a letter of credit produced by the exporter on the basis of which disbursements are normally allowed.

In both the cases following particulars are to be verified: 1. Name of the Buyer. 2. Commodity to be exported. 3. Quantity. 4. Value. 5. Date of Shipment / Negotiation. 6. Any other terms to be complied with. 2. FOREIGN CURRENCY PRE-SHIPMENT CREDIT (FCPC) * The FCPC is available to exporting companies as well as commercial banks for lending to the former. * It is an additional window to rupee packing credit scheme ; available to cover both the domestic i. e. indigenous ; imported inputs. The exporter has two options to avail him of export finance. To avail him of pre-shipment credit in rupees ; then the post shipment credit either in rupees or in foreign currency denominated credit or discounting /rediscounting of export bills. * To avail of pre-shipment credit in foreign currency ; discounting/rediscounting of the export bills in foreign currency. * FCPC will also be available both to the supplier EOU/EPZ unit and the receiver EOU/EPZ unit. Pre-shipment credit in foreign currency shall also be available on exports to ACU (Asian Clearing Union) countries with effect from 1. 1. 1996.

Eligibility: PCFC is extended only on the basis of confirmed /firms export orders or confirmed L/C’s. The “Running account facility will not be available under the scheme. However, the facility of the liquidation of packing credit under the first in first out method will be allowed. Order or L/C : Banks  should not  insist   on  submission  of  export   order  or  L/C  for  every disbursement    of  pre-shipment   credit , from exporters   with consistently   good  track  record. Instead, a system of periodical submission of a statement of L/C’s or export orders in hand, should be introduced.

Sharing of FCPC: Banks may extend FCPC to the manufacturer also on the basis of the disclaimer from the export order. Export Finance HSBC is a market leader in Export Finance, recognised through annual Dealogic surveys. Through a team of professionals in strategic locations globally, Export Finance arranges medium- and long-term financing for HSBC clients in the public and private sector across the globe buying capital goods and services. Finance can cover marine assets, aircraft, power generation equipment, infrastructure development, manufacturing equipment, oilfield services and a host of other goods and services.

Export Finance also features regularly in the financing of limited recourse projects, as a project financing tool. Export Finance uses government guarantee programmes, Export Credit Agencies (ECAs), in an exporting country to credit enhance the financing to the buyer, thereby achieving highly competitive pricing for the buyer. It also allows borrowers to access a new pool of risk capital, often with appetite for extended tenors relative to traditional bank financing. Export Finance provides structuring, arranging, documentation and distribution services for clients in relation to almost all ECAs.

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Public Bank Berhad

Public Bank Berhad The Public Bank Malaysia was founded in the year 1966. The logo, in modern geometric design, is conceived from two interlocking octagons denoting the domestic and international connections of the Group. The interlocking of the two octagons also suggests security, strength and stability. As per the latest reports Public Bank Malaysia is the largest domestic bank in Malaysia after Malayan Banking Berhad. The Public Bank Malaysia, in terms of its market capitalization, is the largest corporation in Malaysia that is not linked with the Government.

The expansion and progress of the Group are symbolised by the edges of the octagons pointing outwards at various directions. Additionally, the graphic formation of the two interlocking octagons also creates an “eye” of foresight of the organisation. Industry Of Public Bank Berhad Public Bank Berhad is an industry leader in hire purchase financing, home mortgage financing and commercial lending to SMEs in Malaysia. The bank has a strong distribution network comprising 248 full service branches in Malaysia and 109 overseas in Hong Kong, China, Vietnam, Cambodia, Laos and Sri Lanka. Public Bank

Product Range Of Public Bank Berhad Public Bank Berhad in one of the leading providers of integrated financial services in Malaysia. It primarily focuses on providing banking and financial services. The bank is engaged in offering various financial products and services, which includes investment banking, commercial banking, wealth management products, and Islamic banking services. Target Market Of Public Bank Berhad The whole Malaysian, Hong Kong, China, Vietnam, Cambodia, Laos and Sri Lanka. Aimed at providing customized banking services and products to individual customers in addition to small business concerns.

Consumer Groups The core business areas of the Public Bank Group are consumer and retail commercial loans. Individuals and families can find a range of lending solutions to buy residential unit, vehicle or a consumer good. The bank offers home loan, car loan, passenger vehicle hire purchase financing and personal loan at easy terms and conditions. The small and medium sized enterprises, too, can find simplified procedure here to apply for a commercial loan. Position of The Company In Relation To Other Competitors Public Bank Berhad operates in the Commercial banks sector.

This analysis compares Public Bank Berhad with three other companies: Malayan Banking Berhad (2011 sales of 18. 28 billion Malaysian Ringgits [US$5. 85 billion] of which 25% was Consumer Banking), Cimb Group Holdings Berhad (2010 sales: 16. 06 billion Malaysian Ringgits [US$5. 14 billion] of which 19% was Foreign Banking Ope), and AMMB Holdings Berhad (2011 sales of 5. 83 billion Malaysian Ringgits [US$1. 87 billion] of which 46% was Retail Banking). Company| Sales(blns)| P/E| P/B| Mkt Cap(RMm)| Revenue(RM’000,000)| Public Bank Berhad| 10. 345| 13. 1| 3. 10| 45,067. 8| 10,523| Malayan Banking Berhad| 18. 278| 13. 0| 1. 90| 62,592. 67| 18,397| Cimb Group Holdings Berhad| 16. 059| 13. 5| 2. 07| 55,597. 16| 16,635| AMMB Holdings Berhad| 5. 831| 12. 2| 1. 69| 17,904. 26| 6,343| Market Capital Revenue Ratio For Public Bank | 2008| 2009| 2010| Current ratio| 120,700,000,000/34,789,000,000=3. 47| 137,600,000,000/41,835,000,000=3. 29| 156,500,000,000/45,911,000,000=3. 41| Quick ratio| 60,656,000,000/34,789,000,000=1. 97| 67,986,000,000/41,835,000,000=1. 63| 59,269,000,000/45,911,000,000=1. 29| Average age of inventory | Impossible since PBB is not involved in trading.

No inventories| Impossible since PBB is not involved in trading. No inventories| Impossible since PBB is not involved in trading. No inventories| Average Collection Period| Impossible since PBB is not involved in trading. No sales hence no receivables| Impossible since PBB is not involved in trading. No sales hence no receivables| Impossible since PBB is not involved in trading. No sales hence no receivables| Average payment period| Impossible since PBB is not involved in trading. No purchases| Impossible since PBB is not involved in trading. No purchases| Impossible since PBB is not involved in trading.

No purchases| Total asset turnover| 10,500,307,000/196,163,106,000=0. 054| 9,715,568,000/271,136,154,000=0. 045| 11,035,597,000/226,328,976,000=0. 049| Debt ratio| (185,934,374,000/196,163,106,000)x100=94. 79%| (205,420,830,000/217,136,154,000)x100=94. 60%| (212,643,888,000/226,328,976,000)x100=93. 96%| Time interest earned| 18,790,015,000/4,562,396,000=4. 12x| 17,068,609,000/3,316,609,000=5. 15x| 19,149,128,000/3,516,111,000=5. 45x| Gross profit margin| (3,948,155,000/10,500,307,000)x100=37. 60%| (4,015,055,000/9,715,568,000)x100=41. 33%| (4,738,265,000/11,035,597,000)x100=42. 4%| Net profit margin| (2,622,660,000/10,500,307,000)x100=24. 98%| (2,551,540,000/9,715,568,000)x100=26. 26%| (3,099,077,000/11,035,597,000)x100=28. 08%| ROA| (2,622,660,000/196,163,106,000)x100=1. 34%| (2,551,540,000/217,136,154,000)x100=1. 18%| (3,099,077,000/226,328,976,000)x100=1. 37%| ROE| (2,622,660,000/10,228,732,000)x100=25. 64%| (2,551,540,000/11,715,324,000)x100=21. 78%| (3,099,077,000/13,685,088,000)x100=22. 65%| Analysis Of Public Bank Performance Liquidity Ratio Current Ratio = Current assets/current liabilities 2008| 2009| 2010| 120,700,000,000/ 34,789,000,000 =3. 7| 137,600,000,000/ 41,835,000,000 =3. 29| 156,500,000,000/ 45,911,000,000 =3. 41| The ratio is mainly used to measure the company’s ability to pay back its short-term liabilities with its short-term assets. As we seen the company current ratio for these 3 years, there are decreases from year 2008 to year 2009 but they increase back when come to year 2010. These 3 years current ratio is significant higher than the acceptable ratio. The acceptable ratio is 2:1 but for the public bank, the current ratio are (2008 1 : 3. 47, 2009 1 : 3. 29, 2010 1 : 3. 41).

These shows that the Public Bank is not using its resources as efficiently as it could be. Public Bank should reduce its current assets so there are no excessive current assets. Quick Ratio = (current assets-inventories)/current liabilities 2008| 2009| 2010| 60,656,000,000/ 34,789,000,000 =1. 97| 67,986,000,000/ 41,835,000,000 =1. 63| 59,269,000,000/ 45,911,000,000 =1. 29| Quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. From the company 3 years quick ratio, the quick ratio are (2008 1 : 1. 7, 2009 1 : 1. 63, 2010 1 : 1. 29) These shows that the company quick ratio is slightly higher than the acceptable ratio that are 1:1. But the quick ratio for the company are getting better year to year. The company should reduce its current account to reach the desirable ratio that are 1:1. Activity Ratio Average age of inventory =(Average inventories/Cost of sales)x365 2008| 2009| 2010| N/A| N/A| N/A| Impossible to compute since Public Bank Berhad is not involved in trading. No physical inventories are involved. Average collection period = (receivables/sales) x365 2008| 2009| 2010|

N/A| N/A| N/A| Impossible to compute since Public Bank Berhad is not involved in trading. No physical inventories are involved. Average payment period =(Payable/Cost of sales)x365 2008| 2009| 2010| N/A| N/A| N/A| Impossible to compute since Public Bank Berhad is not involved in trading. No physical purchases are involved. Total assets turn over= Operating revenue/total assets 2008| 2009| 2010| 10,500,307,000/196,163,106,000 =0. 054| 9,715,568,000/271,136,154,000 =0. 045| 11,035,597,000/226,328,976,000 =0. 049| Asset turnover measures a firm’s efficiency at using its assets in generating sales.

The total assets turnover over for the 3 years, there are decrease in year 2009 but increases in year 2010. For each RM1 of assets for the year 2008, Public Bank only manage to generate RM0. 054 of sales. For the year 2009 and 2010, for each RM1 of the assets, Public Bank only generates RM0. 045 and RM0. 049 of sales. The amount are worsen but there are increases for year 2010. This is because the company have higher profit margin, so they would have lower assets turnover. Financial Ratio Debt ratio=(Total liabilities/Total asset)x100% 2008| 2009| 2010| (185,934,374,000/196,163,106,000)x100=94. 9%| (205,420,830,000/217,136,154,000)x100=94. 60%| (212,643,888,000/226,328,976,000)x100=93. 96%| A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. Time Interest Earned Ratio=EBIT/Interest 2008| 2009| 2010| 18,790,015,000/4,562,396,000=4. 12x| 17,068,609,000/3,316,609,000=5. 15x| 19,149,128,000/3,516,111,000=5. 45x| Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company’s ability to sustain earnings.

However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rationale is that a company would yield greater returns by investing its earnings into other projects and borrowing at a lower cost of capital than what it is currently paying to meet its debt obligations. Analysis : The company have a high time interest earned ratio in this few year and the ratio keep increase. This suggests that this company is less burdened by debt expense and the company has no problem in settling its interest expenses in the future.

Profitability Ratio Gross Profit Margin=Gross profit margin/Net sales 2008| 2009| 2010| (3,948,155,000/10,500,307,000)x100=37. 60%| (4,015,055,000/9,715,568,000)x100=41. 33%| (4,738,265,000/11,035,597,000)x100=42. 94%| The gross margin is not an exact estimate of the company’s pricing strategy but it does give a good indication of financial health. Without an adequate gross margin, a company will be unable to pay its operating and other expenses and build for the future. Net Profit Margin=(Earning to common stockholders/sales)x100% 2008| 2009| 2010| (2,622,660,000/10,500,307,000)x100=24. 98%| (2,551,540,000/9,715,568,000)x100=26. 6%| (3,099,077,000/11,035,597,000)x100=28. 08%| Net profit margin is the ratio of net profit to revenues a company’s pricing strategy and operating efficiency. Return On Assets=(Earning to common stockholders/total assets)x100% 2008| 2009| 2010| (2,622,660,000/196,163,106,000)x100=1. 34%| (2,551,540,000/217,136,154,000)x100=1. 18%| (3,099,077,000/226,328,976,000)x100=1. 37%| Return on assets is an indicator of how profitable a company is relative to its total asset, the ratio measures how efficient management is at using its assets to generate earning. Return On Equity=(Earning to common stockholders/total equity)x100% 2008| 2009| 2010| 2,622,660,000/10,228,732,000)x100=25. 64%| (2,551,540,000/11,715,324,000)x100=21. 78%| (3,099,077,000/13,685,088,000)x100=22. 65%| Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. Analysis : Public Bank Berhad have a very high net profit margin and the profit increase from 24. 98% in year 2008 to 26. 26% in year 2009. When in year 2010, it rise to 28. 08% again. It’s mean this company generate 24. 98% in year 2008, 26. 26% in year 2009 and 28. 08% in year 2010 for every RM100 sales. Furthermore, the return on assets are in the high rate.

In the year 2008, the ROA is 1. 34% and it decreased to 1. 18% in the year 2009. However, in year 2010 the ROA increases to 1. 37%. It’s because of Public Bank has expanded its self –service channels such as Automated Teller Machines, Cheque Deposit Machines and Cash Deposit Terminals to 1,400 machines to serve its large customer base. The ROE for this company in year 2008 is 25. 64%. However it drops to 21. 78% in the year 2009. The ROE increases again in the year 2010 to 22. 65%. It’s mean this company is more capable of generating cash internally. For the example, Public Bank Berhad is able to pay its shareholders the return he interest of 25. 64% in the year 2008. Conclusion The Overall of our research about Public Bank Berhad have a very good performance. The Public Bank group should seek to tap all growth opportunities arising from the improving economic and business environment, with the aim of delivering superior shareholder value over the long-term. Retail consumer and commercial banking should remain the core focus of the Group. In consumer financing, the group should continue to promote home mortgages, passenger vehicle hire purchase financing and personal financing. Recommendation

Overall all our research about Public Bank Berhad and its competitors, Public Bank Berhad was performance very well in this 3 years. Especially when come to the year 2010, the profit before tax increases by 23. 0%. The Group’s gross loans, advances and financing recorded strong growth of 13. 8% in 2010, with the Group’s domestic lending business growing 15. 6% during the year. However, Gross impaired loans ratio drop by 0. 03%. The financial pandemic in late 2008 and 2009 that threatened to push the global economy into a deep recession was largely contained through the concerted efforts of the world’s major government and central banks.

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Education in Evolution: from Freire’s Bank Clerk to Problem Poser

Our portrait as students is an evolution of experiences of continuous life’s challenges and disasters. In our childhood, we consider our parents the first teachers. In the process of growing and maturing, we join the educational world going to school at the same time that we are introduced to the school of life. As scholars, we have experienced Freire’s two educational methods – bank-clerk and problem-posing.

It is true that the educator would decide what method to employ, however, at the end, most of us, including the students depicted in ancient and modern literature, would choose to be critical thinkers and exhibit Freire’s “Emerging Consciousness”, opening the door to creativity, critical and a revolutionary learning process. Usually, the beginning of our education starts at home; our parents are the first ones who teach us how to behave with manners and cultural customs. The education that we received at home can be different for everybody and the reason is different cultures, languages, and religion.

The way our parents and families teach us can be defined as coalition of bank clerk and problem posing methods, the parents are the teachers and we are the students, sometimes the parents use the “banking” concept, they talk and give commands and the students just listen and accept the commands. As Freire declares Education thus becomes an act of depositing, in which the students are the depositories and the teacher is the depositor. Instead of communicating, the teacher issues communiques and makes deposits which students patiently receive, memorize, and repeat.

This is the “banking” concept of education, in which the scope of action allowed to the students extends only as far as receiving, filing, and storing the deposits (Freire 72). Freire tells us that using “banking” education, the parents become narrators and the children just containers to be filled with the parents’ knowledge. Pedagogy of the Oppressed emphasizes that communication between parents and children, doesn’t exist in a “banking” education. “Banking” education means suppression and by suppression, children are limited to extend their learning process by being filled by the parents’ ideas.

But do the parents realize that using a bank-clerk method minimizes or annuls their children’s creative power? Some parents do not realize it, they become oppressors and their children the oppressed. They consider their children inexperienced and ignorant. The parents think that their children have to learn what they teach them without asking or questioning anything, this way they would be integrated into the society accepting the passive role imposed on them. Strepsiades can be a good example of a father using “banking” education. Strepsiades wants his son to join the Thinkery to learn the two logics to save him from his debts.

In the beginning, Pheidippides does not want to join the Thinkery because he believes that people from the Thinkery are crazy and what is taught is a fraud. Finally, Strepsiades persuades Pheidippides and he joins the Thinkery. Strepsiades claims “So tutor him in your two logics – traditional Philosophical Logic and that flashy modern sophistic logic they call Immoral because it’s so wonderfully wicked. In any case, if he can’t master both logics, I insist that he learn the Immoral Kind of argument” (The Clouds 66). Strepsiades does not question Socrates methods, he tells Socrates to take his son as his student and teach him the two logics.

Stresiades does not care whatever it would take for Pheidippides to learn the two logics. Stresiades sees Pheidippides just as tool that would server the purpose of avoiding to pay his debts. Pheidippides is the oppressed and he can not question or criticize any method that they would use in the Thinkery to teach him the two logics. However, other parents like mine, using a coalition of both educational methods, sometimes talk in a mandatory way and nothing is negotiable; as Colonel Graff, the head of the battle school, does with Ender.

Occasionally, my parents talk to me as a friend in a rational way, sharing their experiences and exposing their problems. As equal human beings, we reach the communication between teacher and student; in the process of learning from each other we expose Freire’s “emerging consciousness”. We do not see parents just as an authority, we see them as friends, together, through dialogue, critical criteria, and creativity we develop a problem-posing education.

In Ender’s case, he is the third child of the Wiggin’s family; he knows that he could not stay with his biological parents, his instincts push him toward new experiences and the discovery of new things. He leaves his parents in an early age to join a battle school. Beginning on that day, Colonel Graff acts as Ender’s father at the school and Ender’s life would not be the same again. Like Ender, I felt the same attraction when I first joined culinary school at age of 13, leaving my family far away to experience one of the biggest challenges in my life.

I would be alone in a place where everything and everybody was unknown to me. This life experience was a vital part of my educational journey. As Freire believes “Students, as they are increasingly posed with problems relating to themselves in the world and with the world, will feel increasingly challenged and obligated to respond to that challenge” (Freire 81). Freire thinks that when we find challenges in our life, that relate to ourselves, we develop the power to perceive critically the way of our existence in the world and in which we find ourselves; becoming teachers-students and students-teachers.

Graff enforces “banking” education on Ender, manipulating, isolating, and limiting his existence in the school. Graff believes We could be wiped out and it would adjust, it would get on with the next step in evolution. But humanity doesn’t want to die. As a species, we have evolved to survive. And the way we do it is by straining a straining and, at last, every few generations, giving birth to genius. The one who invents the wheel. And light. And flight. The one who builds a city, a nation, an empire. (Ender’s Game 35). Graff explains to Ender why they chose him to join the battle school.

He tells Ender that they expect him to be a hero and save humanity. As a tutor and teacher. Graff, being a bank-clerk, pushes Ender to his limits, but Ender’s reaction is different, the more they challenge and isolate him the more he awakes his emerging consciousness. Ender soon becomes the best strategist and leader of the battle school. On the other hand, Pecola’s story is totally different from Ender’s. Pecola bears the blame for the sins, crimes, mistakes or misfortunes of her parents, she suffers abuses from her parents, and people at the school even the cashier from the grocery store that sees through her.

She is treated as a marginal person who does not fit in to white people’s view of what beauty means for society. For Pecola, beauty means to have blue eyes. Pecola feels As long as she looked the way she did, as long as she was ugly, she would have to stay with these people. Somehow she belonged to them. Long hours she sat looking in the mirror, trying to discover the secret of the ugliness, the ugliness that made her ignored or despised at school, by teachers and classmates alike. She was the only member of her class who sat alone at a double desk. The blues eye 45). Pecola does not like the world of isolation and oblivion where she lives. She associates black with ugliness. She tries to find an answer to why people ignore and despised her at the school and at home. She thinks that the solution for all her problems is to get blue eyes, and for her blue eyes are synonymous of acceptance and beauty. Unfortunately Pecola’s experiences at the school are not pleasant, fortunately, we join the educational world going to the school, and enjoying the adbantanges of education.

The school of life together with the other educations helps us to improve our civilization. In this process, we find educators that would choose the “banking” system or the problem posing method. In my experience, some of the professors that I had in the past, used “banking” system; they would become transmitters and we would be the receptors. Most of the time with this kind of education you learn whatever the teacher tells you to learn, but in a short period of time this information would disappear. With a problem-posing education there is a relationship between professor and student.

The class would become more active and teacher and student would become subjects of the educational process and humanism, they would learn from each other. Freire believes Those who use the “banking” approach, knowingly or unknowingly (for there are innumerable well-intentioned bank-clerk teachers who do not realize that they are serving only to dehumanize), fail to perceive that the deposits themselves contain contradictions about reality. But, sooner or later, these contradictions may lead formerly passive students to turn against their domestication and the attempt to domesticate reality.

They may discover through existential experience that their present way of life is irreconcilable with their vocation to become fully human (Freire 75). Freire tells us that sometimes bank-clerk teachers do not realize that this method affects the students. It limits their thinking capability to be critical, to be creative and to develop new theories or ideas. He also tells us that the contradictions about reality sometimes may lead the passive students to awake their consciousness and to go against their teachers and the “banking” method in order to become fully human.

For example, Ender usually is pushed to his limits by Graff who uses a “banking” method, isolating him from the rest of the students, challenging and changing the rules always. But Ender never surrenders, he answers his teachers in a problem poser way solving all the challenges using his emerging consciousness. It is true that at a certain point, Ender believes “It’s the teachers, they’re the enemy. They get us to fight each other, to hate each other. The game is everything. Win win win. It amounts to nothing” (Ender’s game 108).

Eventually, Ender sees the teachers as his enemies and the game as nothing, which he demonstrates through such actions as his at the battle against two armies. As Freire says the contradictions about reality, leads the passive students to turn against the domesticate reality. Ender declares “I’m trapped here, Ender thought, trapped at the End of the World with no way out. And he knew at last the sour taste that had come to him, despite all his successes in the Battle School. It was despair” (Ender’s Game 141).

Ender tells us how he feels about being manipulated and also about lacking control over his own life. He fears the possibility of running out of ideas and not being able to win. He is worried because he has a huge responsibility. He is the last hope of the humanity. He knows that if he wants to win against the Buggers he has to learn more about them, he has to learn how to love his enemies, this way he finds their weaknesses and he uses this strategy to destroy them. However, Ender and Pheidippides are from different genres and belong to distant eras.

Pheidippides in the Thinkery is exposed to radical thinkers like Sophistry and by highly imaginative thinkers like Socrates. Above all, this creates repercussion, undermining traditional values and corrupting the moral of youths. Sohpistry is a clear example of a problem poser method and he teaches Pheidippides that the principles of a society, such as justice and truth, are just concepts that can be adapted or interpreted to the needs of society. After he graduates from the Socrates’ Thinkery, Pheidippides believes that he is a new man.

Using his emerging consciousness he thinks that with this power he can challenge everybody and everything. Pheidippides points out “But now, now that Socrates has made a fresh Pheidippides of me, now that my daily diet is Philosophy, Profundity, Subtlety, and Science, I propose to prove beyond the shadow of a doubt the philosophical propriety of beating my Father” (The clouds 103). Pheidippides emerging consciousness allows him to break and create his own rules, he says that his father deserves the beating because his father ordered him to play a lyre and sing a song even when Pheidippides did not wish to do it.

His father keeps ordering things and Pheidippides did not agree with his father’s wishes, consequently he beat his father. Pheidippides justifies his acts telling his father that he beats him because he loves him and he says that for him loving and beating are synonymous. Pheidippides emerging consciousness makes him a bully. Never mind Pheidippides, Pecola’s classmates torment and abuse her for being black and ugly, she is also raped by her father, and eventually she becomes pregnant by him.

Although the baby dies, her mother treats her coldly, as she thinks Pecola is ugly and is ashamed of her. Pecola becomes a martyr, she just wants to disappear from this world. She thinks that she is responsible for all bad things that happen in the world. Claudia who is Pocola’s friend comments The damage done was total. She spent her days, her tendril, sap-green days, walking up and down, up and down, her head jerking to the beat of a drummer so distant only she could hear. Elbows bent, hands on shoulders, she flailed her arms like a bird in an eternal, grotesquely futile effort to fly.

Beating the air, a winged but grounded bird, intent on the blue void it could not reach—could not even see—but which filled the valleys of the mind. (The bluest eye 204). Claudia describes Pecola who has lost her mind. Pecola is force farther into her fantasy world, which is her defense against violence and cruelty. The school of life awakes Pecola’s emerging consciousness in a different way from the other students, instead to expose to the world and confront the challenges; she drives herself into a state of madness over the blue eyes.

Tired of a dark and sad world she decides to disconnect with the reality and she creates her world, with her own rules and friends where everything is beautiful and perfect, where she has the bluest eyes. It is true, that our emerging consciousness is the result of our different educations that is based on a problem-poser method, it does not serve the concern of the oppressor. Freire thinks as revolutionaries, we perceive the world as a reality in the process of evolution instead of a static reality. Therefore we should strive for a humanist society.

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Deutche Bank

9-205-059 REV: APRIL 26, 2005 GEORGE CHACKO PETER HECHT VINCENT DESSAIN ANDERS SJOMAN Deutsche Bank: Finding Relative-Value Trades It was the third week of August 2003, and Jamil Baz, head of Deutsche Bank’s Fixed Income Research Group, gathered his research group for a morning meeting. “So, what are the markets telling us today? ” he asked the group. “Are there any trends or news for new trade ideas? ” The Fixed Income Research Group that Baz led was Deutsche Bank’s internal research and development (R&D) department for fixed income instruments.

Their mandate was to look for untapped value across bond markets and interest rate derivatives. Long-term-oriented research findings were presented to clients, whereas immediate opportunities were suggested as trades to internal traders as well as clients. The success of the group was in part measured by how many of their trade suggestions actually turned into successful trades. So far, they had achieved an impressive 75% success rate. A natural place to start looking for new trades was the latest prices on various U.

S. Treasury bonds (see Exhibit 1 for data from August 15, 2003). The group’s members consistently went through that data set, looking for possible trades to recommend. Typically relative-value trades took both long and short positions across different parts of the yield curve. Baz’s standard weekly question just emphasized what they all knew: that it was time to scour through the numbers one more time to see if any such positions were available. The Deutsche Bank Fixed Income Research Group

Headquartered in Deutsche Bank’s London office, the company’s Fixed Income Research Group consisted of about 50 analysts and strategists. (An additional 10 were located in the bank’s New York offices. ) Global head of Fixed Income Research and in charge of the group was Baz, a managing director with Deutsche Bank since 2001. Previously at Lehman Brothers in London, Baz also held an M. S. in management from MIT and a Ph. D. in business economics from Harvard University. As a part of a large financial institution, the research group was under constant pressure to monetize the ideas that they generated.

The group presented its findings both internally to the ________________________________________________________________________________________________________________ Professors George Chacko and Peter Hecht, Executive Director of the HBS Europe Research Center Vincent Dessain, and Research Associate Anders Sjoman prepared this case. This case deals with trade-specific advice activities of a research department and draws heavily from “Deutsche Bank: Discussing the Equity Risk Premium,“ HBS Case No. 205-040, by the same authors. Case No. 205-040 deals with macro-level advice from the same research department.

Some names and data have been disguised for confidentiality. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. This case is not intended as financial advice, and it should not be used as the basis for any investment decision, in whole or in part. Copyright © 2004 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www. bsp. harvard. edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 205-059 Deutsche Bank: Finding Relative-Value Trades Deutsche Bank traders, as well as externally to Deutsche Bank clients at the CEO, CFO, and Treasury level. Baz explained how the ideas were pitched: The final goal is to create a franchise with fixed income clients.

So, for clients on the asset side, such as mutual funds, hedge funds, insurance companies, and pension plans, we help them generate high returns on their assets. We give specific ideas to be executed by the clients—hopefully with us, although that is never certain. However, even if we don’t get a trade out of our recommendation, it is important enough that we maintain Deutsche Bank’s presence at the client. Sometimes we also do bespoke—or customized—work, where we analyze their balance sheet and asset-liability mismatches for them, almost like technical financial consulting.

In general, research alone will not give us clients, but research combined with pricing are the keys to building long-lasting relationships with external clients. Overall, we strive to push the frontiers of analytical finance when it comes to modeling interest rates, volatilities, and spreads. Owing to data availability and an intimate exposure to institutional market realities, we are often pushed to reach results ahead of academic finance journals. On a group level, Deutsche Bank organized its fixed income activities in the global markets around three main pillars: investor coverage, issuer coverage, and research.

The trading desks dealing in these areas were in turn divided into two groups: credit (with credit trading/credit derivatives, new issue syndicate, asset securitization, and emerging markets) and rates (with foreign exchange, money markets, fixed income, and interest rate derivatives). The research efforts of the group were set up to match these organizational divisions. The Fixed Income Research Group was one of several research groups (as shown in Exhibit 2). All these groups were run under the banner of Global Markets Research.

Research as a whole was headed by David Folkerts-Landau. Demand for direct meetings with Deutsche Bank’s research groups had grown over the past few years, taken internally as a sign of increased respect for the bank’s research output. In the last year, Baz’s group alone had logged over 1,500 client meetings. All clients had access to the Deutsche Bank research in papers and newsletters that were available online. Internal traders also benefited from the research, which was a major influence behind much of the bank’s proprietary—or “prop”—trading.

Most members of the research group shared their time between external clients and traders, with more senior staff members working more with external clients and less with the trading floor. In the end, measuring the research group’s value to the organization was still difficult. Said Baz: Putting a value on the work we do, and the effect we have on the bank, is very hard. In fact, if you were to really measure it by attributing sales and trades back to us, the trading floor would be more reluctant to work with us. Instead, we are mostly evaluated by top management on three other factors.

Firstly, overall market direction, which is how much of rate and spread moves did we catch in our advice. Secondly, the relative-value trades we originated. Thirdly, any customized business we have brought in from our client meetings. Compensation to the members of the group was tied to the evaluation of the group as a whole. Individual bonuses were then given at the discretion of Baz as the group’s manager, based on his qualitative impression of each member’s contribution. 2 Deutsche Bank: Finding Relative-Value Trades 205-059 Strategic Advice and Relative-Value Activities

The group’s activities were normally broken down into strategic advice on macro trends and relative value. The strategic advice activities built on long-term discussions with clients, where the group presented Deutsche Bank’s view on macroeconomic trends to external clients. In these discussions, George Cooper, the group’s global fixed income strategist, typically did not expect a quick monetary return. Cooper, a Ph. D. graduate in engineering at Durham University with experience from both Goldman Sachs and JP Morgan, explained: This type of activity does not generate a lot of money from a trade perspective.

It generates brand value, though, and is especially appealing to insurance companies or asset-liability people, who appreciate the long-term view. We believe it serves more of an educational purpose. It gets the fund managers thinking. They are not looking for prescriptive research, where we tell them to “do this trade,” but they look for interesting ideas. Of course, they then weigh our ideas against whatever Goldman Sachs or Morgan Stanley are saying. Our role is to come up with hopefully insightful but also informative new ways to look at things.

By contrast, the relative-value activities looked for more immediate opportunities by comparing different instruments and then recommending various trading strategies to clients and internal traders. Head of Relative Value Research for Europe was Jean Dumas, an engineer from ESME SUDRIA in France with a specialization in finance, who had worked with Relative Value Research for Deutsche Bank in Paris, Frankfurt, and Sydney before moving to London. Dumas explained his work: We come up with different types of trades all the time.

The trade opportunities may be there for a week or two, sometimes longer. I look at different spreadsheets, listen to what traders are saying, watch the news, study different models. . . . Then I try to put everything together—and suddenly there is a trade opportunity. Our job is really grabbing things that don’t seem to be related at first and see if there is a trade to be done. The trade opportunities that the research group identified were published weekly in the newsletter “Deutsche Bank Fixed Income Weekly,” which was distributed to Deutsche Bank traders as well as to clients.

A frequent contributor to the newsletter was Dr. Nikan B. Firoozye, head of Global Quantitative Strategies and a Ph. D. graduate in mathematics from Courant Institute at New York University with experience from Alliance Capital, Sanford C. Bernstein, and Lehman Brothers. Firoozye explained: I write a piece on Euroland strategy every week where we suggest trades. Some of these are big trades that we don’t change very often, such as curve-steepening trades. We can have the same trade off and on for a full year. We also summarize economic data as it impacts the bond markets.

For instance, how structured trades could be influenced by the move in dollar versus yen, and how you should position for that. In his role as head of Euroland Strategy, Firoozye also oversaw all strategic investments in Euroland bond markets. He was also involved in all modeling issues and wrote stand-alone papers on quantitative strategy. Looking for a Relative-Value Trade For the research group, one way to find relative-value trades was to compare the prices of traded securities against the prices that the group thought the securities should trade at. This subjective view 205-059 Deutsche Bank: Finding Relative-Value Trades was based on a proprietary model developed at Deutsche Bank. (Most banks used proprietary models as a base from which to evaluate the prices of traded securities. ) The models were built on the fact that the returns offered by fixed income instruments could be characterized by the yields that they offered. The yield was roughly seen as compensation for the risk borne by the holder of that security. There were many sources of risk in fixed income securities, such as interest rate risk, credit risk, and prepayment risk.

Also, the yield of an instrument could be broken down into components. The components could be thought of as compensation for the different sources of risk. So, for example, the yield on a corporate bond could be thought of as being composed of a risk-free yield plus a credit spread. The risk-free yield represented compensation for interest rate risk in the bond, while the credit spread represented compensation for default risk in the bond. 1 To understand the compensation for the interest rate risk alone, banks typically constructed “yield-curve models. These were models for the yields on zero-coupon Treasury securities, since Treasury instruments typically contained only interest rate risk. Models for the yield curve could be then used to compare the current and expected prices of U. S. Treasury instruments. 2 The research group at Deutsche Bank had developed their own proprietary yield-curve model, a so-called three-factor affine model (see Exhibit 3 for a conceptual description of the model). Firoozye explained the fundaments of the model: We have three factors driving the yield curve that we see as analogous to the economy.

In an economy, there is inflation, output gaps, and short rates. So first among our factors is a long rate, which is analogous to inflation. It is the slowest mean reverting of our three factors. In the fifties inflation was low, in the seventies it was extremely high, and now it is back down again. It takes 20 years to go through its cycle. It is very slow, very persistent, whereas the business cycle is much, much faster. You go through a business cycle in about seven years. So slope, our second factor, is then the measure of output gap. Slope mean reverts much more quickly than inflation.

The third factor is the short rate, which mean reverts the fastest. After estimating the variables of the three-factor model, the team calibrated the model to price the one-month, two-year, and 10-year zero-coupon bond. After Baz’s request at the weekly meeting, the analysts now used the latest numbers on various U. S. Treasury bonds to update and calibrate the model (see Exhibit 4 for the resulting output from Deutsche Bank’s model). The idea was to then compare the actual zero-coupon yield curve against the predicted ones coming out of the model and see if any trade ideas presented themselves.

In fact, several trades seemed to come out of that comparison. Baz and the team now had to pick the trades with the highest profit potential. 1 It should be noted that the notion of compensation here is approximate. The yield on a zero-coupon corporate bond is not the expected return of that bond. It is simply the promised return of that bond, or the return an investor would get if the bond did not default. Starting with this promised return and then factoring in the probability of default and a default risk premium leads to the expected return for that bond. More generally, yield-curve models could be used to price any interest rate-sensitive security. For example, the pricing of interest rate options starts with a yield-curve model. 4 Deutsche Bank: Finding Relative-Value Trades 205-059 Exhibit 1 Prices and Coupon Rates of Various U. S. Treasury Bonds on August 15, 2003 Coupon Rate (%) 3 2. 125 1. 5 6. 5 5. 625 2. 375 6. 25 3. 25 3 3. 25 5. 5 6 6. 5 5. 75 5 5 4. 875 4. 375 3. 875 4. 25 13. 25 12. 5 11. 25 10. 625 9. 25 7. 5 8. 75 8. 875 9. 125 9 8. 875 8. 125 8. 5 8. 75 7. 875 8. 25 8 7. 25 7. 125 6. 25 7. 5 7. 5 7. 625 6. 875 6 6. 75 6. 625 6. 375 6. 125 5. 5 5. 25 6. 125 Maturity Date 2/15/2004 8/15/2004 2/15/2005 8/15/2005 2/15/2006 8/15/2006 2/15/2007 8/15/2007 2/15/2008 8/15/2008 2/15/2009 8/15/2009 2/15/2010 8/15/2010 2/15/2011 8/15/2011 2/15/2012 8/15/2012 2/15/2013 8/15/2013 2/15/2014 8/15/2014 2/15/2015 8/15/2015 2/15/2016 8/15/2016 2/15/2017 8/15/2017 2/15/2018 8/15/2018 2/15/2019 8/15/2019 2/15/2020 8/15/2020 2/15/2021 8/15/2021 2/15/2022 8/15/2022 2/15/2023 8/15/2023 2/15/2024 8/15/2024 2/15/2025 /15/2025 2/15/2026 8/15/2026 2/15/2027 8/15/2027 2/15/2028 8/15/2028 2/15/2029 8/15/2029 Current Price 101. 0544 100. 9254 99. 8942 109. 0934 108. 438 99. 7848 111. 7184 101. 0841 99. 1692 99. 271 109. 7707 112. 145 114. 9084 110. 3894 105. 2934 104. 7607 103. 4391 99. 2806 95. 0288 97. 7693 174. 3251 168. 9389 157. 0552 152. 4222 140. 0135 123. 3044 136. 0598 137. 504 140. 792 139. 9079 138. 7431 130. 7162 135. 2938 138. 3466 128. 4995 131. 7341 130. 4736 121. 58 120. 1744 109. 4538 125. 46 125. 4466 127. 1477 117. 5509 106. 3626 116. 1986 114. 7086 111. 036 108. 0391 99. 633 96. 2876 108. 4062 Source: Adapted by casewriter from Datastream. 5 205-059 Deutsche Bank: Finding Relative-Value Trades Exhibit 2 Deutsche Bank Global Markets Research Organization Global Head COO and Co-Head Global Economics Global Strategist Foreign Exchange Securitization Index Development Regional Heads – Asia/ Pacific – Germany Strategy – Fixed Income/ Relative Value Research – Emerging Markets – Credit Credit (High Grade Credit Research) Economics – Global – US – Europe – Emerging Markets Source: Deutsche Bank. Exhibit 3 • • •

Deutsche Bank’s Zero-Coupon Yield Model Key variables: Short rate, slope, and long rate (or short rate, output gap, and inflation) Model specified by a system of equations (in Q measure) Long rate mean reverts slowly (possibly to nonzero mean) dX t= ( µ X ? k X X t) dt + ? X dWt X • Slope mean reverts faster (to zero) dYt = ? kY Yt dt + ? Y dWt Y • X t + Yt ? rt = 0 • In equilibrium short rate, rt, follows the target Xt+Yt (an analogue of the Taylor rule) Short rate mean reverts fast in order to restore the equilibrium drt = k r ( X t + Yt ? rt ) dt + ? r dWt r

Source: Adapted by casewriter from “Quantitative Models for Fixed Income,” Deutsche Bank presentation, October 2003. 6 Deutsche Bank: Finding Relative-Value Trades 205-059 Exhibit 4 Output from Deutsche Bank’s Zero-Coupon Yield Model Model Prediction (BEY) 1. 2443% 1. 8727% 2. 4110% 2. 9665% 3. 4454% 3. 8557% 4. 1996% 4. 4677% 4. 6528% 4. 7107% 5. 7160% 5. 9517% 5. 9315% Maturity (years) 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y 15y 20y 25y Source: Note: Adapted by casewriters from Deutsche Bank information. The yields in this table are bond equivalent yields (BEY), that is, the semiannual yield multiplied by two. 7

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Test Bank: Introduction to Probability and Statistics

True/False Questions 1. The standard deviation of any normal random variable is always equal to one. Answer: False Type: Concept Difficulty: Easy 2. For any normal random variable, the probability that the random variable will equal one is always zero. Answer: True Type: Concept Difficulty: Medium 3. The graph of a standard normal random variable is always symmetric. Answer: True Type: Concept Difficulty: Easy 4. The formula will convert any normal distribution into the “standard normal distribution. ” Answer: True Type: Concept Difficulty: Easy 5.

Any normal random variable with standard deviation equal to one is a standard normal random variable. Answer: False Type: Concept Difficulty: Medium 6. The notation X – N(4, 32) indicates a normal distribution with mean 2 and standard deviation 3. Answer: False Type: Concept Difficulty: Easy 7. The total area under a normal curve is always equal to one. Answer: True Type: Concept Difficulty: Easy 8. The notation Z – N(0, 1) indicates a standard normal distribution. Answer: True Type: Concept Difficulty: Easy 9. The probability that a normal random variable will be within two standard deviations of its mean is approximately 0. 8. Answer: False Type: Concept Difficulty: Easy 10. The normal distribution is a continuous distribution. Answer: True Type: Concept Difficulty: Easy 11. The normal distribution can be used to approximate the binomial distribution when both np and n(1 – p) are at least five. Answer: True Type: Concept Difficulty: Easy 12. The normal distribution approximation to the binomial works best when n is large. Answer: True Type: Concept Difficulty: Easy 13. The formula can be used with both a normal and binominal distribution. Answer: True Type: Concept Difficulty: Easy Multiple Choice Questions 4. Find P(-2 < Z < 2). A)0. 9544 B)0. 4772 C)0. 9772 D)0. 6826 E)none of the above Answer: A Type: Computation Difficulty: Easy 15. Find P(-0. 5 < Z < 0. 5). A)0. 3830 B)0. 1915 C)0. 6515 D)0. 3085 E)none of the above Answer: A Type: Computation Difficulty: Easy 16. What is the probability that a standard normal variable will be between -0. 5 and 1. 00? A)0. 2857 B)0. 5328 C)0. 6687 D)0. 2500 E)none of the above Answer: B Type: Computation Difficulty: Easy 17. Find the probability that a standard normal random variable has a value greater than -1. 56. A)0. 0332 B)0. 0594 C)0. 9406

D)0. 9668 E)none of the above Answer: C Type: Computation Difficulty: Easy 18. Let X be a normally distributed random variable with mean 100 and standard deviation 20. Find two values, a and b, symmetric about the mean, such that the probability of the random variable being between them is 0. 99. A)90. 5, 105. 9 B)80. 2, 119. 8 C)22, 78 D)48. 5, 151. 5 E)90. 1, 109. 9 Answer: D Type: Computation Difficulty: Medium 19. A professor grades his students on a normal distribution, with mean at 75 and standard deviation of 15. If there are 39 students in his class, about how many score between 80 and 90? A)5

B)21 C)8 D)13 E)none of the above Answer: C Type: Computation Difficulty: Hard 20. A calculator manufacturer performs a test on its calculators and finds their working life to be normally distributed, with a mean of 2,150 hours and a standard deviation of 450 hours. What should the manufacturer advertise as the life of the calculators so that 90% of the calculators are covered? A)2,555 B)1,947 C)1,410 D)1,745 E)1,574 Answer: E Type: Computation Difficulty: Hard 21. You have two stocks: A and B. The price of each stock is normally distributed. Stock A has a mean of 25 and a standard deviation of 3.

Stock B also has a mean of 25, but the standard deviation is 5. If I buy stock A at $25 and sell it on a randomly chosen day in the future (without knowing its price then), what is the probability that I will make at least $2 on each share? Answer the same for stock B. A)0. 2514, 0. 1554 B)0. 2514, 0. 3446 C)0. 2486, 0. 1554 D)0. 2486, 0. 3446 E)none of the above Answer: B Type: Computation Difficulty: Hard 22. Find two values symmetric around a mean of 20 such that they include an area equal to 0. 75. (standard deviation = 5). A)16. 65, 23. 35 B)19. 25, 20. 75 C)16. 25, 23. 75 D)14. 25, 25. 75

E)none of the above Answer: D Type: Computation Difficulty: Hard 23. A spark plug manufacturer believes that his plug lasts an average of 30,000 miles, with a standard deviation of 2,500 miles. What is the probability that a given spark plug of this type will last 37,500 miles before replacement? A)0. 0228 B)0. 0114 C)0. 0013 D)0. 0714 E)0. 0833 Answer: C Type: Computation Difficulty: Medium 24. Fluctuations in the exchange rate of dollars against the pound sterling over a short time period were approximated by a normal distribution with a mean of 2. 01 and a standard deviation of 0. 13.

What is the probability that the rate on a particular day was more than 1. 90? A)0. 8461 B)0. 3023 C)0. 8023 D)0. 3461 E)none of the above Answer: C Type: Computation Difficulty: Medium 25. The average time it takes for a letter in the United States to reach from one place in the 48 contiguous states to another is 3. 2 days, with a standard deviation of 0. 85 days. What is the probability of a letter arriving at its destination no more than four days after mailing? Assume a normal distribution. A)0. 1736 B)0. 3264 C)0. 8264 D)0. 6736 E)0. 6528 Answer: C Type: Computation Difficulty: Medium 6. The contents of a particular bottle of shampoo marked as 150 ml are found to be 153 ml at an average, with a standard deviation of 2. 5 ml. What proportion of shampoo bottles contain less than the marked quantity? Assume a normal distribution. A)0. 2192 B)0. 1151 C)0. 4452 D)0. 0548 E)none of the above Answer: B Type: Computation Difficulty: Medium 27. The age of people in a town is normally distributed, with a mean of 34 years and a standard deviation of 11 years. Find two values for age that will give a symmetric 0. 95 probability interval. A)28. 78, 39. 23 B)32. 30, 66. 30 C)23. 55, 44. 45

D)12. 44, 55. 56 E)15. 91, 51. 10 Answer: D Type: Computation Difficulty: Medium 28. The weight of apples in a farm is normally distributed, with a mean of 110 grams, and a standard deviation of 15 grams. Find the probability that an apple selected at random will weigh between 95 and 105 grams. A)0. 3413 B)0. 4706 C)0. 1293 D)0. 2108 E)0. 5294 Answer: D Type: Computation Difficulty: Medium 29. A grocery store has a mean accounts receivable of $264, with a standard deviation of $55. The accounts receivable are normally distributed. What proportion of all accounts will be greater than $275? A)0. B)0. 1 C)0. 4207 D)0. 0793 E)0. 0228 Answer: C Type: Computation Difficulty: Medium 30. A grocery store has a mean accounts receivable of $264, with a standard deviation of $55. The accounts receivable are approximately normally distributed. Find the value such that 45% of all the accounts exceed this value. That is, find x such that: P(X > x) = 0. 45. A)$257. 13 B)$354. 48 C)$270. 91 D)$309. 00 E)none of the above Answer: C Type: Computation Difficulty: Medium 31. The waist measurement of students in a college is normally distributed. The standard deviation is known to be five inches.

It is found that 15% of the students have waist sizes less than 28 inches. What proportion of students will have waists between 30 and 35 inches? A)0. 3795 B)0. 2389 C)0. 1406 D)0. 0983 E)none of the above Answer: A Type: Computation Difficulty: Hard 32. The IQs of the employees of a company are normally distributed, with a mean of 127 and a standard deviation of 11. What is the probability that the IQ of an employee selected at random will be between 120 and 130? A)0. 2389 B)0. 3453 C)0. 1064 D)0. 1325 E)0. 4638 Answer: B Type: Computation Difficulty: Medium 33.

The mean life of a computer disk drive is 2,000 hours, with a standard deviation of 140 hours. Assuming the life-time of the drives to be normally distributed, find the probability of a disk-drive lasting more than 1,800 hours? A)0. 4236 B)0. 9236 C)0. 8472 D)0. 5764 E)0. 2118 Answer: B Type: Computation Difficulty: Medium 34. The average bill for car repairs at a car service center is $196, with a standard deviation of $44. Assuming the bills to be normally distributed, find the probability of a bill exceeding $300. A)0. 4909 B)0. 0182 C)0. 9819 D)0. 1406 E)0. 0090 Answer: E Type: Computation Difficulty: Medium 35.

The GMAT scores of students in a college are normally distributed with a mean of 520 and a standard deviation of 41. What proportion of students have a score higher than 600? A)0. 9744 B)0. 2372 C)0. 4774 D)0. 0255 E)none of the above Answer: D Type: Computation Difficulty: Medium 36. The probability that a normal random variable with mean zero and standard deviation one will equal the number 1. 00 is: A)1 B)0. 9 C)0. 3413 D)0. 1587 E)0 Answer: E Type: Concept Difficulty: Medium 37. Suppose that X is a normal random variable with mean 17 and standard deviation 10. The probability that the value of X will be between -2. and 36. 6 is: A)0 B)0. 90 C)a number very close to 1 D)0. 95 E)0. 99 Answer: D Type: Computation Difficulty: Medium 38. Suppose that X is a normal random variable with mean 10 and standard deviation 4. Then the probability that X will be greater than 12 is: A)0. 1587 B)0. 3085 C)0. 1915 D)0. 4772 E)none of the above Answer: B Type: Computation Difficulty: Medium 39. A normal random variable has a distribution that is: A)always symmetric B)never symmetric C)sometimes symmetric D)symmetric if the mean is positive E)symmetric if the variance is negative Answer: A Type: Concept Difficulty: Medium 0. The distribution of X, the number of cars sold per day, where X can be 0, 1, 2, 3, 4, or 5 is: A)sometimes normally distributed B)never normal C)always normal D)a uniform distribution E)none of the above Answer: B Type: Concept Difficulty: Medium 41. What is the probability that a normal random variable with mean 15 and standard deviation 5 will have a value of exactly 25? A)0. 0228 B)0. 0456 C)0. 9772 D)0 E)1 Answer: D Type: Concept Difficulty: Medium 42. If X is a normal random variable with mean 12 and standard deviation 2, then the probability that X will exceed 16 is? A)0. 4772 B)0. 0228 C)0. 9772 D)0 E)1 Answer: B Type: Computation Difficulty: Medium 43. If X is a normal random variable with mean 15 and standard deviation 10, then the probability that X will have a negative value is: A)0. 0668 B)0. 432 C)0. 9332 D)0. 8664 E)none of the above Answer: A Type: Computation Difficulty: Medium 44. If X is a normally distributed random variable with mean 16 and variance 64, the probability that the random variable will have a value between 0. 32 and 31. 68 is: A)0. 99 B)0. 90 C)0. 85 D)1 E)0. 95 Answer: E Type: Computation Difficulty: Medium 45.

For a normally distributed random variable with mean zero and standard deviation five, the probability that its value will be greater than -5 is: A)0. 4772 B)0. 9544 C)0. 3413 D)0. 8413 E)none of the above Answer: D Type: Computation Difficulty: Medium 46. What is the probability that a standard normal random variable is between -0. 4 and 1. 4? A)0. 3413 B)0. 4254 C)0. 5746 D)0. 2638 E)none of the above Answer: C Type: Computation Difficulty: Easy 47. All of the following are characteristics of the normal distribution, except: A)symmetric about the mean B)bell-shaped curve C)total area under the curve is always one

D)it is a discrete distribution E)probability that x is equal to any specific value is zero Answer: D Type: Computation Difficulty: Medium 48. Find two values symmetric about a mean of 100, standard deviation of 10, such that they include an area equal to 0. 95. A)90, 110 B)80. 4, 119. 6 C)98. 04, 101. 96 D)70, 130 E)none of the above Answer: B Type: Computation Difficulty: Medium 49. A tire manufacturer believes its tires will last an average of 48,000 miles, with standard deviation of 2,000 miles. What is the probability that one of these tires, chosen at random, will last at least 50,000 miles?

A)0. 6587 B)0. 3413 C)0. 1587 D)0. 4772 E)none of the above Answer: C Type: Computation Difficulty: Medium 50. Suppose that an instructor gives an exam. This instructor wants to give those students in the top 2. 5% an A on this exam. What will the cutoff be for an A, if the average score on this exam is 80, with a standard deviation of 5? A)about 80 B)about 90 C)about 85 D)about 86 E)none of the above Answer: B Type: Computation Difficulty: Hard Use the following to answer questions 51-54: LittleAir operates a fleet of regional jets on a contract basis for a major air carrier.

LittleAir’s jets seat only 50 passengers, but because passengers’ travel plans often change, LittleAir books up to 60 reservations for a typical flight. Booked passengers have a “no-show” probability of 0. 25. 51. Suppose LittleAir loses money if the number of passengers on a flight is less than 40. What is the probability that a randomly selected LittleAir flight will have fewer than 40 passengers? A)0. 0367 B)0. 0505 C)0. 0681 D)0. 0901 E)0. 1492 Answer: B Type: Computation Difficulty: Medium 52. What is the probability that a randomly selected LittleAir flight will be overbooked (i. . , have more passengers show up than there are seats available)? A)0. 1170 B)0. 0901 C)0. 0681 D)0. 0505 E)0. 0367 Answer: D Type: Computation Difficulty: Medium 53. What is the probability that a randomly selected LittleAir flight will be full? A)0. 1170 B)0. 0901 C)0. 0681 D)0. 0505 E)0. 0367 Answer: B Type: Computation Difficulty: Medium 54. Suppose LittleAir gives compensation vouchers to any passenger who is denied a seat on an overbooked flight. Because these vouchers are valuable (> $200), management would like to keep the number of them on-hand at a minimum.

How many vouchers should be held at the gate such that there are enough for at least 99% of all situations? A)1 voucher B)2 vouchers C)3 vouchers D)4 vouchers E)5 vouchers Answer: C Type: Computation Difficulty: Hard Use the following to answer questions 55-57: The ski season at a popular resort destination lasts 120 days. Experience has shown that the probability of snow on any given day is 0. 55 and is independent of whether or not there was snow on the previous day. 55. What is the probability of there being more than 60 days of snow in any given year? A)0. 7967 B)0. 8438 C)0. 8643

D)0. 8830 E)0. 8997 Answer: B Type: Computation Difficulty: Medium 56. What is the probability of there being fewer than 55 days of snow in any given year? A)0. 0409 B)0. 0268 C)0. 0217 D)0. 0174 E)0. 0139 Answer: D Type: Computation Difficulty: Medium 57. Suppose a particular hotel at this destination breaks even or makes money so long as there are at least 50 days of snow but no more than 70 days of snow. What is the probability of the hotel’s losing money in any given year? A)0. 8438 B)0. 7955 C)0. 7944 D)0. 7664 E)0. 7657 Answer: B Type: Computation Difficulty: Hard 58.

If, for a binomially distributed random variable n*p = 5 and n*(1-p) = 5, then a _____________ distribution with a mean equal to _____ and a standard deviation equal to _____ typically can be used. A)Normal; ; B)Normal; ; C)Exponential; ; D)Exponential; ; E)Hypergeometric; ; Answer: A Type: Concept Difficulty: Easy Short Answer Questions Use the following to answer questions 59-67: If x ~ N(40, 32): 59. Find p(X ; 37) Answer: 0. 8413 Type: Computation Difficulty: Medium 60. Find p(X ; 47) Answer: 0. 0099 Type: Computation Difficulty: Medium 61. Find p(42 ; X ; 47) Answer: 0. 415 Type: Computation Difficulty: Medium 62. Find p(X ; 41) Answer: 0. 3707 Type: Computation Difficulty: Medium 63. Find p(36 ; X ; 41) Answer: 0. 5375 Type: Computation Difficulty: Medium 64. Find p(36 ; X ; 39) Answer: 0. 2789 Type: Computation Difficulty: Medium 65. Find x1 such that: p(X ; xl) = 0. 0475 Answer: 45 Type: Computation Difficulty: Medium 66. Find xl such that: p(40 ; X ; xl) = 0. 3770 Answer: 43. 48 Type: Computation Difficulty: Medium 67. Find x1 such that: p(X ; x1) = 0. 0154 Answer: 33. 52 Type: Computation Difficulty: Medium

Use the following to answer questions 68-69: There are two shipping routes between a plant and a distribution point. The average time by route A is 220 minutes with a standard deviation of 20 minutes. The average time and standard deviation by route B are 200 and 40, respectively. Assume the distributions of trips can be approximated by normal curves. 68. What proportion of route B trips takes longer than the average route A trip? Answer: 0. 3085 Type: Computation Difficulty: Medium 69. 95% of route A trips take between what two values that are equidistant from the mean? Answer: [180. 8, 259. 2] Type: Computation Difficulty: Medium

Use the following to answer questions 70-73: The amount dispensed into bottles by a machine in a ketchup plant is supposed to be normally distributed with a mean of 10 ounces and a standard deviation of 0. 5 ounce. If the machine is working properly, what is the probability that a single bottle chosen at random from the assembly line will have: 70. More than 11 ounces or less than 9. 5 ounces? Answer: 0. 1815 Type: Computation Difficulty: Medium 71. Between 9. 5 and 11 ounces? Answer: 0. 8185 Type: Computation Difficulty: Medium 72. What would you think if a single bottle chosen at random had less than . 5 ounces? Answer: p(x ; 8. 5) = 0. 0013, so we might conclude the machine is operating improperly. Type: Computation Difficulty: Medium 73. Between what two values symmetric about the mean would you expect to find 99% of the bottles filled by the machine, if it is operating properly? Answer: [8. 712, 11. 288] Type: Computation Difficulty: Medium 74. If the contents of bottles coming off a production line are normally distributed with a mean of 16 ounces and a variance of 0. 625, what’s the probability of choosing a bottle at random and finding its contents to be less than 15. 1 ounces? Answer: 0. 2676 Type: Computation Difficulty: Medium 75. A seed packet says that 90% of lettuce seedlings should be between 2 and 2. 5 inches high after 5 weeks. Assuming an average height of 2. 25 inches (and a normal distribution), what’s the standard deviation of heights of 5-week-old seedlings? Answer: 0. 1520 Type: Computation Difficulty: Medium Use the following to answer questions 76-78: If the distribution of heights of mature poppy plants is normal, with a mean of 16 inches and a standard deviation of 3 inches, what proportion of the poppies will be: 76.

Between 10 and 20 inches? Answer: 0. 8854 Type: Computation Difficulty: Medium 77. Less than 9 inches? Answer: 0. 0099 Type: Computation Difficulty: Medium 78. More than 24 inches? Answer: 0. 0038 Type: Computation Difficulty: Medium 79. You are interested in the incomes of your customers. A random sample of customer incomes yields a mean income of $35,000 with a standard deviation of $4,421. A) Determine what percent of the population would have a salary above $38,000. B) What income range that is symmetric about the mean would include 95% of your customers? Answer:

A) 24. 83% have incomes above $35,000. B) 95% of your customers have an income between $26,330 and $43,670. Type: Computation Difficulty: Medium 80. Half of all mutual funds of a particular class charge up-front administration fees. Assuming that a random sample of 60 of these mutual funds is taken, calculate: A) The mean and standard deviation of the normal approximation of the binomial. B) The probability that no more than 40 of the mutual funds sampled charge an up-front administration fee. Answer: A) Mean = 30, standard deviation = 3. 873 B) Prob(# charging fee = 40) = 0. 9966

Type: Computation Difficulty: Medium 81. The owner of a 100-room hotel has discovered that his reservations team has booked 110 reservations for an upcoming weekend. Experience has shown that 10% of reservations are “no shows. ” How likely is this hotel to be overbooked (i. e. , have more guests arrive than there are rooms available) for this particular weekend? Answer: 0. 3156 Type: Computation Difficulty: Medium 82. Harry Highroller likes to bet on the roulette wheel when he is in Las Vegas. Roulette wheels in Las Vegas typically have 38 spaces: 18 of them are red; 18 are black; and 2 are green.

Harry’s “strategy” is simple: He bets $2 on every spin, he always bets on red, and he always plays exactly 100 spins. If red comes up, Harry wins $2. If either black or green comes up, Harry loses $2. Suppose Harry has decided to play his usual strategy tonight. A) What are the mean and standard deviation of the normal approximation of the binomial in this instance? B) What is the probability that, after 100 plays, Harry will be ahead (i. e. , have more money than he started with)? Answer: A) Mean = 47. 37 and standard deviation = 4. 993 B) 0. 2643 Type: Computation Difficulty: Medium

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Icici Bank Report

ICICI BANK ABOUT ICICI BANK: ICICI Bank is India’s second-largest bank with total assets of Rs. 4,736. 47 billion (US$ 93 billion) at March 31, 2012 and profit after tax Rs. 64. 65 billion (US$ 1,271 million) for the year ended March 31, 2012. The Bank has a network of 2,766 branches and 9,363 ATMs in India, and has a presence in 19 countries, including India.

ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. ICICI Bank started as a wholly owned subsidiary of ICICI Limited, an Indian financial institution, in 1994. Four years later, when the company offered ICICI Bank’s shares to the public, ICICI’s shareholding was reduced to 46%.

In the year 2000, ICICI Bank offered made an equity offering in the form of ADRs on the New York Stock Exchange (NYSE), thereby becoming the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. In the next year, it acquired the Bank of Madura Limited in an all-stock amalgamation. Later in the year and the next fiscal year, the bank made secondary market sales to institutional investors.

With a change in the corporate structure and the budding competition in the Indian Banking industry, the management of both ICICI and ICICI Bank were of the opinion that a merger between the two entities would prove to be an essential step. It was in 2001 that the Boards of Directors of ICICI and ICICI Bank sanctioned the amalgamation of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank.

In the following year, the merger was approved by its shareholders, the High Court of Gujarat at Ahmedabad as well as the High Court of Judicature at Mumbai and the Reserve Bank of India. ICICI Bank has its equity shares listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited. Overseas, its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). As of December 31, 2008, ICICI is India’s second-largest bank, boasting an asset value of Rs. 3,744. 10 billion and profit after tax Rs. 30. 14 billion, for the nine months, that ended on December 31, 2008. BRANCHESOFATMS:

ICICI Bank has a wide network both in Indian and abroad. In India alone, the bank has 1,420 branches and about 4,644 ATMs. Talking about foreign countries, ICICI Bank has made its presence felt in 18 countries – United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The Bank proudly holds its subsidiaries in the United Kingdom, Russia and Canada out of which, the UK subsidiary has established branches in Belgium and Germany. Products Personal Banking * Deposits * Loans Cards * Investments * Insurance * Demat Services * Wealth Management NRI Banking * Money Transfer * Bank Accounts * Investments * Property Solutions * Insurance * Loans Business Banking * Corporate Net Banking * Cash Management * Trade Services * FXOnline * SME Services * Online Taxes * Custodial Services Board Members * Mr. K. V. Kamath,- Chairman * Mr. Sridar Iyengar * Dr. Swati Piramal * Mr. Homi R. Khusrokhan * Mr. Arvind Kumar * Mr. M. S. Ramachandran Dr. Tushaar Shah Mr. V. Sridar Ms. Chanda Kochhar, Managing Director & CEO Mr. N. S. Kannan, Executive Director & CFO Mr. K. Ramkumar, Executive Director Mr. Rajiv Sabharwal,

Executive Director Head Office ICICI Bank 9th Floor, South Towers ICICI Towers Bandra Kurla Complex Bandra (E) Mumbai Phone: 91-022-653 7914 Website: www. icicibank. com SWOT ANALYSIS: Strengths of ICICI Bank * ICICI is the second largest bank in terms of total assets and market share * Total assets of ICICI is Rs. 4062. 34 Billion and recorded a maximum profit after tax of Rs. 51. 51 billion and located in 19 countries * One of the major strength of ICICI bank according to financial analysts is its strong and transparent balance sheet * ICICI bank has first mover advantage in many of the banking and financial services.

ICICI bank is the first bank in India to introduce complete mobile banking solutions and  jewelry card * The bank has PAN India presence of around 2,567 branches and 8003 ATM’s * ICICI bank is the first bank in India to attach life style benefits to banking services for exclusive purchases and tie-ups with best brands in the industry such as Nakshatra, Asmi, D’damas etc * ICICI bank has the longest working hours and additional services offering at ATM’s which attracts customers * Marketing and advertising strategies of ICICI have good reach compared to other banks in India Weaknesses of ICICI Bank Customer support of ICICI section is not performing well in terms of resolving complaints * There are lot of consumer complaints filed against ICICI * The ICICI bank has the most stringent policies in terms of recovering the debts and loans, and credit payments. They employ third party agency to handle recovery management * There are also complaints of customer assault and abuse while recovering and the credit payment reminders are sent even before the deadlines which annoys the customers * The bank service charges are comparatively higher The employees of ICICI are bank in maximum stress because of the aggressive policies of the management to win ahead in the race. This may result in less productivity in future years Opportunities of ICICI Bank * Banking sector is expected to grow at a rate of 17% in the next three years * The concept of saving in banks and investing in financial products is increasing in rural areas as more than 62% percentage of India’s population is still in rural areas. As per 2010 data in TOI, the total number b-schools in India are more than 1500. This can ensure regular supply of trained human power in financial products and banking services * Within next four years ICICI bank is planning to open 1500 new branches * Small and non performing banks can be acquired by ICICI because of its financial strength * ICICI bank is expected to have 20% credit growth in the coming years. * ICICI bank has the minimum amount of non performing assets Threats of ICICI Bank RBI allowed foreign banks to invest up to 74% in Indian banking * Government sector banks are in urge of modernizing the capacities to ensure the customers switching to new age banks are minimized * HDFC is the major competitor for ICICI, and other upcoming banks like AXIS, HSBC impose a major threat * In rural areas the micro financing groups hold a major share * Though customer acquisition is high on one side, the unsatisfied customers are increasing and make them to switch to other banks. PORTER’S FIVE FORCE ANALYSIS: Bargaining Power of Suppliers: * Inputs have little impact on costs When inputs are not a big component of costs, suppliers of those inputs have less bargaining power. Low cost inputs positively affect ICICI Bank. Bargaining Power of Customers * Large number of customers * When there are large numbers of customers, no one customer tends to have bargaining leverage. Limited bargaining leverage helps ICICI Bank. Intensity of Existing Rivalry * Low storage costs (ICICI Bank) * Government limits competition (ICICI Bank) * Large industry size (ICICI Bank) Threat of Substitutes New Aspirants in Banking sector like AV Birla, Tata Group, IFCI etc. Threat of New Competitors * Strong distribution network required (ICICI Bank) * High capital requirements (ICICI Bank) * High sunk costs limit competition (ICICI Bank) * Industry requires economies of scale (ICICI Bank) * Geographic factors limit competition (ICICI Bank) * High learning curve (ICICI Bank) SUBSIDIARIES COMPANIES: At March 31, 2012, ICICI Bank had 17 subsidiaries as listed in the following table: DOMESTIC SUBSIDIARIES * ICICI Securities Primary Dealership Limited * ICICI Prudential Asset Management Company Limited ICICI Prudential Trust Limited * ICICI securities Ltd. * ICICI Venture Funds Management Company Limited * ICICI Prudential Life Insurance Company Limited * ICICI Prudential Pension Funds Management Company Limited * ICICI Lombard General Insurance Company Limited * ICICI Home Finance Company Limited * ICICI Investment Management Company Limited * ICICI Trusteeship Service Limited INTERNATIONAL SUBSIDIARIES: * ICICI Bank UK PLC * ICICI Securities Inc. * ICICI International Ltd. * ICICI Bank Eurasis Ltd. Liability Company. * ICICI Securities Holdings, Inc * ICICI Bank Canada FINANCIAL HIGHLIGHTS:

As required by United States securities regulations, ICICI Bank Limited (NYSE: IBN) filed its annual report in Form 20-F for the year ended March 31, 2012 (FY2012) on July 31, 2012. The Form 20-F annual report includes the Bank’s consolidated financial statements under Indian GAAP and a reconciliation of consolidated profit after tax and net worth under Indian GAAP to net income and stockholders’ equity under US GAAP, approved by the Audit Committee of the Board. The consolidated profit after tax for FY2012 under Indian GAAP was Rs. 7,643 crore (US$ 1,502 million) and the net income under US GAAP was Rs. ,998 crore (US$ 1,375 million). Stockholders’ equity as per US GAAP was ` 63,872 crore (US$ 12. 55 billion) at March 31, 2012 compared to the consolidated net worth as per Indian GAAP of ` 61,277 crore (US$ 12. 04 billion) ICICI BANK Key Financial Ratios of ICICI Bank Mar’12 | Mar’11| Mar ’10| Mar ’09| Mar ’08| investment Valuation Ratios| | | | | Face Value| 10. 00| 10. 00| 10. 00| 10. 00| 10. 00| Dividend Per Share| 16. 50| 14. 00| 12. 00| 11. 00| 11. 00| Operating Profit Per Share (Rs)| 76. 15| 64. 08| 49. 80| 48. 58| 51. 29| Net Operating Profit Per Share (Rs)| 346. 19| 281. 04| 293. 74| 343. 9| 354. 71| Free Reserves Per Share (Rs)| 376. 49| 358. 12| 356. 94| 351. 04| 346. 21| Bonus in Equity Capital| –| –| –| –| –| Profitability Ratios| | | | | Interest Spread| 4. 44| 4. 01| 5. 66| 3. 66| 3. 51| Adjusted Cash Margin(%)| 17. 45| 17. 52| 13. 64| 11. 45| 11. 81| Net Profit Margin| 16. 14| 15. 91| 12. 17| 9. 74| 10. 51| Return on Long Term Fund(%)| 52. 09| 42. 97| 44. 72| 56. 72| 62. 34| Return on Net Worth(%)| 10. 70| 9. 35| 7. 79| 7. 58| 8. 94| Adjusted Return on Net Worth(%)| 10. 70| 9. 27| 7. 53| 7. 55| 8. 80| Return on Assets Excluding Revaluations| 524. 01| 478. 31| 463. 01| 444. 94| 417. 4| Return on Assets Including Revaluations| 524. 01| 478. 31| 463. 01| 444. 94| 417. 64| Management Efficiency Ratios| | | | | Interest Income / Total Funds| 9. 07| 8. 41| 8. 82| 9. 82| 10. 60| Net Interest Income / Total Funds| 3. 89| 4. 01| 4. 08| 3. 99| 4. 29| Non Interest Income / Total Funds| 0. 03| –| 0. 08| 0. 08| 0. 02| Interest Expended / Total Funds| 5. 18| 4. 41| 4. 74| 5. 83| 6. 31| Operating Expense / Total Funds| 1. 89| 2. 09| 2. 59| 2. 60| 2. 76| Profit Before Provisions / Total Funds| 1. 91| 1. 77| 1. 41| 1. 30| 1. 40| Net Profit / Total Funds| 1. 47| 1. 34| 1. 08| 0. 96| 1. 12| Loans Turnover| 0. 8| 0. 17| 0. 17| 0. 18| 0. 20| Total Income / Capital Employed(%)| 9. 10| 8. 41| 8. 90| 9. 90| 10. 62| Interest Expended / Capital Employed(%)| 5. 18| 4. 41| 4. 74| 5. 83| 6. 31| Total Assets Turnover Ratios| 0. 09| 0. 08| 0. 09| 0. 10| 0. 11| Asset Turnover Ratio| 0. 09| 3. 55| 4. 60| 5. 14| 5. 61| Profit And Loss Account Ratios| | | | | Interest Expended / Interest Earned| 68. 00| 65. 29| 68. 44| 73. 09| 76. 28| Other Income / Total Income| 0. 37| 0. 02| 0. 92| 0. 86| 0. 17| Operating Expense / Total Income| 20. 77| 24. 81| 29. 05| 26. 22| 26. 00| Selling Distribution Cost Composition| 0. 73| 0. 94| 0. 72| 1. 4| 4. 43| Balance Sheet Ratios| | | | | Capital Adequacy Ratio| 18. 52| 19. 54| 19. 41| 15. 53| 13. 97| Advances / Loans Funds(%)| 65. 30| 64. 96| 58. 57| 69. 86| 72. 67| Debt Coverage Ratios| | | | | Credit Deposit Ratio| 92. 23| 87. 81| 90. 04| 91. 44| 84. 99| Investment Deposit Ratio| 61. 16| 59. 77| 53. 28| 46. 35| 42. 68| Cash Deposit Ratio| 8. 60| 11. 32| 10. 72| 10. 14| 10. 12| Total Debt to Owners Fund| 4. 23| 4. 10| 3. 91| 4. 42| 5. 27| Financial Charges Coverage Ratio| 0. 39| 0. 44| 0. 33| 0. 25| 1. 25| Financial Charges Coverage Ratio Post Tax| 1. 31| 1. 34| 1. 26| 1. 20| 1. 20| Leverage Ratios| | | | |

Current Ratio| 0. 13| 0. 11| 0. 14| 0. 13| 0. 11| Quick Ratio| 16. 71| 15. 86| 14. 70| 5. 94| 6. 42| Cash Flow Indicator Ratios| | | | | Dividend Payout Ratio Net Profit| 32. 82| 35. 23| 37. 31| 36. 60| 33. 12| Dividend Payout Ratio Cash Profit| 30. 36| 31. 76| 32. 33| 31. 00| 29. 08| Earning Retention Ratio| 67. 19| 64. 49| 61. 40| 63. 23| 66. 35| Cash Earning Retention Ratio| 69. 65| 68. 01| 66. 70| 68. 87| 70. 51| AdjustedCash Flow Times| 36. 54| 39. 77| 44. 79| 49. 41| 52. 34| | | | Mar ’12| Mar ’11| Mar ’10| Mar ’09| Mar ’08| | | | | | | Earnings Per Share| 56. 09| 44. 73| 36. 10| 33. 76| 37. 7| | | | | | Book Value| 524. 01| 478. 31| 463. 01| 444. 94| 417. 64| | | | | | Source:Moneycontrol. com ANALYSIS AND INTERPRETATION: CURRENT RATIO: STUDY OF PROFIT AND LOSS ACCOUNT: Meaning: It is a financial statement, which shows net profit & loss of a company for a specified period. The accounting year means calendar year 12 months or less or more then 12 months. Parts of the Profit and Loss Account The Profit & Loss Account aims to monitor profit. It has three parts. 1) The Trading Account. This records the money in (revenue) and out (costs) of the business as a result of the business ”trading” ie buying and selling.

This might be buying raw materials and selling finished goods; it might be buying goods wholesale and selling them retail. The figure at the end of this section is the Gross Profit . 2) The Profit and Loss Account. This starts with the Gross Profit and adds to it any further costs and revenues, including overheads. These further costs and revenues are from any other activities not directly related to trading. An example is income received from investments. 3) The Appropriation Account. This shows how the profit is “appropriated” or divided between the three uses mentioned above. HORIZONTAL ANALYSIS:

When an analyst compares financial information for two or more years for a single company, the process is referred to as horizontal analysis, since the analyst is reading across the page to compare any single line item, such assales revenues. In addition to comparing dollar amounts, the analyst computes percentage changes from year to year for all financial statement balances, such as cash and inventory. Alternatively, in comparing financial statements for a number of years, the analyst may prefer to use a variation of horizontal analysis called trend analysis. VERTICAL ANALYSIS:

When using vertical analysis, the analyst calculates each item on a single financial statement as a percentage of a total. The term vertical analysis applies because each year’s figures are listed vertically on a financial statement. The total used by the analyst on the income statement is net sales revenue, while on the balance sheet it is total assets. This approach to financial statement analysis, also known as component percentages, produces common-size financial statements. Price/sale ratio: About Price to Sales Ratio(P/S) The price to sales ratio (PS ratio) is calculated by dividing stock price by the revenue per share.

It is most useful for comparing companies within a sector or industry because “normal” values for this ratio vary from industry to industry. In general, low price to sales ratios are more appealing because they suggest that a company is undervalued. P/E ratio: About Price to Earnings Ratio The price to earnings ratio (PE Ratio) is the measure of the share price relative to the annual net income earned by the firm per share. PE ratio shows current investor demand for a company share. A high PE ratio generally indicates increased demand because investors anticipate earnings growth in the future.

The PE ratio has units of years, which can be interpreted as the number of years of earnings to pay back purchase price. PRICE/BOOK VALUE RATIO: About Price to Book Ratio The price to book value is a financial ratio used to compare a company’s book value to its current market price. Book value is an accounting term denoting the portion of the company held by the shareholders at accounting value (not market value). In other words, book value is the company’s total tangible assets less its total liabilities. DCF METHOD: Beta(? ) The Beta (? of a stock or portfolio is a number describing the correlated volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to. This benchmark is generally the overall financial market and is often estimated via the use of representative indices, such as the S;P 500. An asset has a beta of zero if its moves are not correlated with the benchmark’s moves. A positive beta means that the asset generally follows the benchmark, in the sense that the asset tends to move up when the benchmark moves up, and the asset tends to move down when the benchmark moves down.

A negative beta means that the asset generally moves opposite the benchmark: the asset tends to move up when the benchmark moves down, and the asset tends to move down when the benchmark moves up. It measures the part of the asset’s statistical variance that cannot be removed by the diversification provided by the portfolio of many risky assets, because of the correlation of its returns with the returns of the other assets that are in the portfolio. Beta can be estimated for individual companies using regression analysis against a stock market index. The formula for the beta of an asset within a portfolio is here ra measures the rate of return of the asset, rp measures the rate of return of the portfolio, cov(ra,rp) is the covariance between the rates of return. The portfolio of interest in the CAPM formulation is the market portfolio that contains all risky assets, and so the rp terms in the formula are replaced by rm, the rate of return of the market. Beta is also referred to as financial elasticity or correlated relative volatility, and can be referred to as a measure of the sensitivity of the asset’s returns to market returns, its non-diversifiable risk, its systematic risk, or market risk.

The market itself is considered to have a Beta of 1. Using regression analysis, the beta of the stock is calculated. If the beta of the stock is greater than 1, this means the stock’s prices are more volatile than the market, and vice verse. For example, if a stock has a beta of 1. 2, this means that a 1% change in the market index will bring about a 1. 2% change in the stock’s price. Stocks with high beta are considered to be more risky compared to the ones with low beta. Bollinger Bands: Bollinger Bands is a technical analysis tool invented byJohn Bollinger in the 1980s, and a term trademarked  by him in 2011.

Having evolved from the concept of trading bands, Bollinger Bands and the related indicators %b and bandwidth can be used to measure the highness or lowness of the price relative to previous trades. Bollinger Bands consist of: * an N-period moving average (MA) * an upper band at K times an N-period standard deviation above the moving average (MA + K? ) * a lower band at K times an N-period standard deviation below the moving average (MA ? K? ) Typical values for N and K are 20 and 2, respectively.

The default choice for the average is a simple moving average, but other types of averages can be employed as needed. Exponential moving averages are a common second choice. Usually the same period is used for both the middle band and the calculation of standard deviation. INTERPRETATION: The use of Bollinger Bands varies widely among traders. Some traders buy when price touches the lower Bollinger Band and exit when price touches the moving average in the center of the bands. Other traders buy when price breaks above the upper Bollinger Band or sell when price falls below the lower Bollinger Band.

Moreover, the use of Bollinger Bands is not confined to stock traders; options traders, most notably implied volatility traders, often sell options when Bollinger Bands are historically far apart or buy options when the Bollinger Bands are historically close together, in both instances, expecting volatility to revert back towards the average historical volatility level for the stock. When the bands lie close together a period of low volatility in stock price is indicated. When they are far apart a period of high volatility in price is indicated.

When the bands have only a slight slope and lie approximately parallel for an extended time the price of a stock will be found to oscillate up and down between the bands as though in a channel. Traders are often inclined to use Bollinger Bands with other indicators to see if there is confirmation. In particular, the use of an oscillator like Bollinger Bands will often be coupled with a non-oscillator indicator like chart patterns or a trendline; if these indicators confirm the recommendation of the Bollinger Bands, the trader will have greater evidence that what the bands forecast is correct.

Monte carlo simulation: Risk analysis is part of every decision we make. We are constantly faced with uncertainty, ambiguity, and variability. And even though we have unprecedented access to information, we can’t accurately predict the future. Monte Carlo simulation (also known as the Monte Carlo Method) lets you see all the possible outcomes of your decisions and assess the impact of risk, allowing for better decision making under uncertainty. Monte Carlo simulation is a computerized mathematical technique that allows people to account for risk in quantitative analysis and decision making.

The technique is used by professionals in such widely disparate fields as finance, project management, energy, manufacturing, engineering, research and development, insurance, oil & gas, transportation, and the environment. Monte Carlo simulation furnishes the decision-maker with a range of possible outcomes and the probabilities they will occur for any choice of action.. It shows the extreme possibilities—the outcomes of going for broke and for the most conservative decision—along with all possible consequences for middle-of-the-road decisions.

The technique was first used by scientists working on the atom bomb; it was named for Monte Carlo, the Monaco resort town renowned for its casinos. Since its introduction in World War II, Monte Carlo simulation has been used to model a variety of physical and conceptual systems. ICICI BANK CHARTS The annotated chart above shows a stock that opened with a gap up. Before the open, the number of buy orders exceeded the number of sell orders and the price was raised to attract more sellers. Demand was brisk from the start. The intraday high reflects the strength of demand (buyers). The intraday low reflects the availability of supply (sellers).

The close represents the final price agreed upon by the buyers and the sellers. In this case, the close is well below the high and much closer to the low. This tells that even though demand (buyers) was strong during the day, supply (sellers) ultimately prevailed and forced the price back down. Even after this selling pressure, the close remained above the open. By looking at price action over an extended period of time, we can see the battle between supply and demand unfold. In its most basic form, higher prices reflect increased demand and lower prices reflect increased supply. Interpretation:

The Rate-of-Change (ROC) indicator, which is also referred to as simply Momentum, is a pure momentum oscillator that measures the percent change in price from one period to the next. The ROC calculation compares the current price with the price “n” periods ago. The plot forms an oscillator that fluctuates above and below the zero line as the Rate-of-Change moves from positive to negative. As a momentum oscillator, ROC signals include centerline crossovers, divergences and overbought-oversold readings. Divergences fail to foreshadow reversals more often than not so this article will forgo a discussion on divergences.

Even though centerline crossovers are prone to whipsaw, especially short-term, these crossovers can be used to identify the overall trend. Identifying overbought or oversold extremes comes natural to the Rate-of-Change oscillator. Standard deviation chart that measures the amount of variability or dispersion around an average. Standard deviation is also a measure of volatility. Generally speaking, dispersion is the difference between the actual value and the average value. The larger this dispersion or variability is, the higher the standard deviation. The smaller this dispersion or variability is, the lower the standard deviation.

Chartists can use the Standard Deviation to measure expected risk and determine the significance of certain price movements. BRIEF ABOUT PORTFOLIO Annexure: News Analysis Regarding Portfolio * Bajaj Corp Nirmal Bang is bullish on Bajaj Corp and has recommended buy rating on the stock with a target of Rs 228 in its October 9, 2012 research report. “We have upgraded our FY13E and FY14E earnings estimates for Bajaj Corp (BCL) by 6. 4% and 3. 7%, respectively, factoring in higher gross margins. Consequently, we have increased our target price on the stock to Rs228 (from Rs220 earlier) and retained Buy rating on it. ” * DABUR INDIA LTD..

AnandRathi has come out with its report on consumer sector. The research firm recommend`s buy on ITC, Nestle India, Colgate, GSK Consumer, Emami, Pidilite, Agro Tech Foods, Bajaj Corp. , Lovable Lingerie, Zydus Wellness, and Tilaknagar Industries. Dabur, Marico as Hold, and have Sell on HUL, Asian Paints, Britannia, and VST Industries. Consumer companies are expected to report 17% revenue growth, led by higher volumes and prices. We expect stable EBITDA margins, despite rise in raw material costs (up 7-8%) and reduced weights. With tax rates likely to rise 50-150bps, we expect net profit to increase only 15% yoy.

Revenues on the rise: We expect sector revenues to grow 17%, led by volume and price. Offtake from the Canteen Stores Department, comprising 8% of sales, would be subdued. However, rupee depreciation of 10-12% will benefit companies with more than 15% in exports (Asian Paints, Marico, Dabur). * Bharti Airtel Top telecom carrier Bharti Airtel  will bid in an upcoming auction of mobile phone airwaves, said a company source, who declined to be named as the matter is not public yet. The airwaves auction is the result of a Supreme Court order to revoke permits issued in a scandal-tainted sale in 2008.

Bharti Airtel is not affected by that court order but it could be looking to buy additional spectrum. Friday is the deadline for companies to submit their application to participate in the auction, which is scheduled to start on November 12. ICICI BANK: SBI  , HDFC Bank  and ICICI Bank  are the best bets, says Sudarshan Sukhani, s2analytics. com. Jaiprakash Associates  , they had set a target of about Rs 100, much lower when it was Rs 80-81. It is almost there. So now for people who hold positions there are the potential of more gains, but at Rs 95 I do not know if a trader can actually buy. The targets are just in front of us.

Perhaps the stocks will consolidate. Perhaps it could go up and it may not. ” He further added, “The risk-reward is no longer in favor of a short-term trader. For actually people who still hold them I think there is more upside. ” “The Bank Nifty itself becomes a buying opportunity as we just entered the last half an hour of trading. The Nifty is clearly above the 5700 level. I had explained earlier that we do not need a level on the Bank Nifty. If the Nifty is trading above 5700 we can buy the Nifty as well as the Bank Nifty and we should, at least the aggressive traders should. The CNX-IT can be left alone.

Which are the best stocks in the Bank Nifty to go along with? It is State Bank of India, HDFC Bank and ICICI Bank. OBSERVATION: ICICI Bank- Key Fundamentals Market Cap (Rs Cr. ): 118,375 EPS – TTM (Rs):64. 19 P/E Ratio (x):15. 91 Face Value (Rs):10. 00 Latest Div. (%):165. 00 Div. Yield (%):1. 60 Book Value / sh. (Rs) :523. 79 P/B Ratio (x):1. 96 CONCLUSION: There are many online services which offer tools that enable us to choose investments plus those which offer relatively affordable trade margins. These options are basically for everyone though experienced traders could be well versed with them.

To evaluate a good online trading service we need to look at the several factors. Issues to do with fees plus commissions for doing business can quickly rise up. Comprehensive services should be able to provide extended markets in addition to investment services including other retirement options. Since purchasing and selling at online stock trading is nerve racking, overall best services provide instant messaging as well as phone support. Bibliography: www. Moneycontrol. com www. Bseindia. com www. Nseindia. com www. Wikipedia. com ANNEXURE :- As per 1st NOV 2012:-

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Bank Reconciliation Lesson Plan

Lesson Plan – The Bank Reconciliation Statement General Objectives: Students will:

1. Account for differences between the cash book and bank statement balances.

2. Construct a bank reconciliation statement using the adjusted trial balance.

Specific Objectives: Students will: Cognitive:

1. Demonstrate knowledge of the concept of reconciling bank statements.

2. Explain the reasons as to why your cash book and bank statement may not balance.

Psychomotor: 1. Construct a bank reconciliation statement using the adjusted cash book balance.

Affective: 1.Value the importance of preparing a bank reconciliation statement.

Prior Knowledge: Students have a clear understanding of: 1. The two column cash book.

Lesson 1 – Bank Reconciliation Statement| TIME(minutes)| ELEMENTS| METHOD| CONTENT| TEACHER ACTIVITIES| STUDENT’S ACTIVITIES| TEACHER – LEARNING RESOURCES| EVALUATION| | Set Induction/Introduction| -| – Scenario| -Discussion| -Listening- Responding| | – Formative Questioning| | | | Objectives| Sharing the Specific Objectives | | | | | Presentation 1| -| – Reasons for the difference in the bank statement and our cash book. -Questioning- Providing information-Explaining| -Listening- Responding| – Chart- Whiteboard- Whiteboard markers| – Formative Questioning| | Summary 1| Review of Presentation 1| -| Questioning| – Responding| | – Formative Questioning| | Presentation 2| -| – Definition of terms| -Providing information-Explaining| -Listening- Responding| – Chart- Whiteboard- Whiteboard markers| – Formative Questioning| | Summary 2| Review of Presentation 2| -| -Questioning| – Responding| | – Formative Questioning| | Presentation 3| | – Illustration of an example| -Providing information-Explaining| -Listening- Responding| – Chart-

Whiteboard- Whiteboard markers| – Formative Questioning| | Summary 3| Review of Presentation 3| -| -Questioning| – Responding| | – Formative Questioning| | Evaluation| -| – Students will complete prepared worksheet| -Observation| – Working| – Whiteboard- Whiteboard markers| – Summative| | Conclusion| Correction of exercise | -| – Providing feedback| -Providing Answers| – Student’s work| -| | Closure| -| – The teacher will review and recap the lesson and then dismiss the class. | – Dismissing of students. | -| -| -| Lesson Notes Set Induction

Edward Cullen from the movie Twilight has a bank account and money to manage. You will learn to check his monthly account statement and help him make sure his bank balance is correct. This will help him to make sure that he has enough money for his date with Bella this weekend. This will help you in your own life with your own banking responsibilities. A bank statement is a detailed record of the checking account from the bank. The bank statement balance is the amount of money left in the account per bank’s records. The check book balance is the amount of money left in the account per depositor’s records.

All banks use computers to prepare bank statements. Data about all checks paid and all deposits received are entered into the computer in order to keep the depositor’s account up-to-date. All of the data that is stored in the computer is printed out on the bank statement. There will usually be differences between the check book balance and the bank statement balance. In this lesson, you will begin to learn how to explain these differences by preparing a bank reconciliation statement. This statement is used to bring the check book and the bank statement balances into agreement.

Presentation 1

The teacher will now explain the reasons for the difference in the bank statement and the cash book. Which are as follows:

  1. Un-presented cheques
  2. Dishonoured cheques
  3. Direct debits
  4. Standing orders
  5. Bank giro credit

Presentation 2

The teacher gives a brief explanation on the meaning of these items, and why they may cause the bank statement and bank account balances to differ.

Presentation 3

The teacher demonstrates a scenario where the cash book bank balance and the bank statement balance differ.

CASH BOOK DATE| PARTICULARS| AMOUNT| DATE| PARTICULARS| AMOUNT| 2011| | $| 2011| | $|

Dec 1| Balance b/f| 250| Dec 5| J. Gordon| 65| Dec 20| P. Thomas| 100| Dec 27| K. Hughes| 175| Dec 28| D. Jones| 190| Dec 31| Balance c/d| 300| | | 540| | | 540| 2012| | | | | | Jan 1| Balance b/d| 300| | | | Bank Statement 2011| Particulars| Withdrawals| Deposits| Balance| | | $| $| $| Dec 1| Balance b/f| | | 250| Dec 8| 10625| 65| | 185| Dec 21| Deposit| | 100| 285| Dec 28| Deposit| | 190| 475| Dec 29| 10626| 175| | 300| Dec 30| Bank Giro credit: P. Smith| | 70| 370| Dec 31| Bank charges| 50| | 320| | | | | | It is now possible to see that the two items not shown in our cash book are: Bank Giro credit; P.

Smith $70 P. Smith had paid us $70, but instead of paying us by cheque he paid directly into the bank. We did not know of this until we received the bank statement. Bank charges $50 The bank had charged us $50 for keeping our bank account and all the work connected with it. Instead of notifying us they have simply taken out the money out of our bank account. The balance in our cash book was $300, whereas our bank statement shows a balance of $320. To prove that although the balances differ they can be “reconciled” with each other, a bank reconciliation statement will be drawn up.

As we have now identified the items missing from our cash book we can now complete writing it up as follows. Bank Reconciliation Statement as at 31 December 2011 Balance as per cash book $300 Add: Bank Giro credit $70 $370 Less: Bank charges $50 Balance as per bank statement $320 The completed cash book would now look as follows:

CASH BOOK DATE| PARTICULARS| AMOUNT| DATE| PARTICULARS| AMOUNT| 2011| | $| 2011| | $|

Dec 1| Balance b/f| 250| Dec 5| J. Gordon| 65| Dec 20| P. Thomas| 100| Dec 27| K. Hughes| 175| Dec 28| D. Jones| 190| Dec 31| Bank charges| 50| Dec 30| P. Smith| 70| Dec 31| Balance c/d| 320| | | 610| | | 610| 2012| | | | | | Jan 1| Balance b/d| 320| | | | | | | | | | Evaluation: The teacher would present each student with a practise exercise on prepaid expense accounts scenarios. During this time the teacher would walk around the classroom observing the student’s responses and offering assistance were needed.

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Commercial Bank

A commercial bank (or business bank) is a type of financial institution and intermediary. It is a bank that lends money and provides transactional, savings, and money market accounts and that accepts time deposit. Commercial banks represent the core of the credit for any national economy. In turn, the credit is the engine that put in motion the financial flows that determine growth and economic development of a nation. As a result, any efficiency in the activities of commercial banks has special implications on the entire economy.

That is why we consider very useful to present an analysis of possibilities for evaluating the performance in the commercial banks. The management of every commercial bank must establish a system for assessing investment performance which suits its circumstances and needs and this evaluation must be done at consecutive intervals to ensure the achievement of the Bank’s investment objectives of hand; and to know the general direction of the behaviour of investment activity in the past and therefore predictable as it in the future on the other hand.

Because of the crucial role that commercial banks hold in the financial sector, this paper focuses specifically on the managing core risks is banking sector as a vital segment of the whole economy, without which no modern economy can exercise the role and own functions. ————————————————- ————————————————- Origin of the word The name bank derives from the Italian word banco “desk/bench”, used during the Renaissanceera by Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth. 2] However, traces of banking activity can be found even in ancient times. ————————————————- The role of commercial banks Commercial banks engage in the following activities: * processing of payments by way of telegraphic transfer, EFTPOS, internet banking, or other means * issuing bank drafts and bank cheques * accepting money on term deposit * lending money by overdraft, installment loan, or other means * roviding documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures * safekeeping of documents and other items in safe deposit boxes * sales, distribution or brokerage, with or without advice, of: insurance, unit trusts and similar financial products as a “financial supermarket” * cash management and treasury * merchant banking and private equity financing traditionally, large commercial banks also underwrite bonds, and make markets in currency, interest rates, and credit-related securities, but today large commercial banks usually have an investment bank arm that is involved in the mentioned activities[clarify]. ————————————————- [editTypes of loans granted by commercial banks [edit]Secured loan A secured loan is a loan in which the borrower pledges some asset (e. g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan.

The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower, for example, foreclosure of a home. From the creditor’s perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount.

The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may only satisfy the debt against the borrower rather than the borrower’s collateral and the borrower. A mortgage loan is a very common type of debt instrument, used to purchase real estate. Under this arrangement, the money is used to purchase the property. Commercial banks, however, are given security – a lien on the title to the house – until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to epossess the house and sell it, to recover sums owing to it. In the past, commercial banks have not been greatly interested in real estate loans and have placed only a relatively small percentage of assets in mortgages. As their name implies, such financial institutions secured their earning primarily from commercial and consumer loans and left the major task of home financing to others. However, due to changes in banking laws and policies, commercial banks are increasingly active in home financing. Changes in banking laws now allow commercial banks to make home mortgage loans on a more liberal basis than ever before.

In acquiring mortgages on real estate, these institutions follow two main practices. First, some of the banks maintain active and well-organized departments whose primary function is to compete actively for real estate loans. In areas lacking specialized real estate financial institutions, these banks become the source for residential and farm mortgage loans. Second, the banks acquire mortgages by simply purchasing them from mortgage bankers or dealers. In addition, dealer service companies, which were originally used to obtain car loans for permanent lenders such as commercial banks, wanted to broaden their activity beyond their local area.

In recent years, however, such companies have concentrated on acquiring mobile home loans in volume for both commercial banks and savings and loan associations. Service companies obtain these loans from retail dealers, usually on a nonrecourse basis. Almost all bank/service company agreements contain a credit insurance policy that protects the lender if the consumer defaults. [edit]Unsecured loan Unsecured loans are monetary loans that are not secured against the borrower’s assets (i. e. , no collateral is involved). There are small businesss unsecured loans such as credit cards and credit lines to large corporate credit lines.

These may be available from financial institutions under many different guises or marketing packages: * bank overdrafts An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be “overdrawn”. If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the POSITIVE balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply. * corporate bonds credit card debt * credit facilities or lines of credit * personal loans What makes a bank limited liability company A corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business. [1] The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date. (The term “commercial paper” is sometimes used for instruments with a shorter maturity. ) Sometimes, the term “corporate bonds” is used to include all bonds except those issued by governments in their own currencies.

Strictly speaking, however, it only applies to those issued by corporations. The bonds of local authorities and supranational organizations do not fit in either category. [clarification needed] Corporate bonds are often listed on major exchanges (bonds there are called “listed” bonds) and ECNs like Bonds. com and MarketAxess, and the coupon (i. e. interest payment) is usually taxable. Sometimes this coupon can be zero with a high redemption value. However, despite being listed on exchanges, the vast majority of trading volume in corporate bonds in most developed markets takes place in decentralized, dealer-based, over-the-counter markets.

Some corporate bonds have an embedded call option that allows the issuer to redeem the debt before its maturity date. Other bonds, known as convertible bonds, allow investors to convert the bond into equity. Corporate Credit spreads may alternatively be earned in exchange for default risk through the mechanism of Credit Default Swaps which give an unfunded synthetic exposure to similar risks on the same ‘Reference Entities’. However, owing to quite volatile CDS ‘basis’ the spreads on CDS and the credit spreads on corporate bonds can be significantly different. Assets and Liabilities of Commercial Banks in the United States * Glass-Steagall Act * Mortgage constant Functions of Commercial Banks Commercial bank being the financial institution performs diverse types of functions. It satisfies the financial needs of the sectors such as agriculture, industry, trade, communication, etc. That means they play very significant role in a process of economic social needs. The functions performed by banks are changing according to change in time and recently they are becoming customer centric and widening their functions. Generally the functions of commercial banks are divided into two categories viz. rimary functions and the secondary functions. The following chart simplifies the functions of banks. Primary Functions of Commercial Banks Commercial Banks performs various primary functions some of them are given below 1 Accepting Deposits : Commercial bank accepts various types of deposits from public especially from its clients. It includes saving account deposits, recurring account deposits, fixed deposits, etc. These deposits are payable after a certain time period 2 Making Advances : The commercial banks provide loans and advances of various forms. It includes an over draft facility, cash credit, bill discounting, etc.

They also give demand and demand and term loans to all types of clients against proper security. 3 Credit creation :It is most significant function of the commercial banks. While sanctioning a loan to a customer, a bank does not provide cash to the borrower Instead it opens a deposit account from where the borrower can withdraw. In other words while sanctioning a loan a bank automatically creates deposits. This is known as a credit creation from commercial bank. Secondary Functions of Commercial Banks Along with the primary functions each commercial bank has to perform several secondary functions too.

It includes many agency functions or general utility functions. The secondary functions of commercial banks can be divided into agency functions and utility functions. a) Agency Functions : Various agency functions of commercial banks are ————————————————- 1 To collect and clear cheque, dividends and interest warrant. ————————————————- 2 To make payment of rent, insurance premium, etc. ————————————————- 3 To deal in foreign exchange transactions. ————————————————- 4 To purchase and sell securities. ———————————————— 5 To act as trusty, attorney, correspondent and executor. ————————————————- 6 To accept tax proceeds and tax returns. b) General Utility Functions : The general utility functions of the commercial banks include ————————————————- 1 To provide safety locker facility to customers. ————————————————- 2 To provide money transfer facility. ————————————————- 3 To issue traveller’s cheque. ————————————————- To act as referees. ————————————————- 5 To accept various bills for payment e. g phone bills, gas bills, water bills, etc. ————————————————- 6 To provide merchant banking facility. ————————————————- 7 To provide various cards such as credit cards, debit cards, Smart cards, etc. Andrievskiy Wealth Management establishes bank accounts for onshore and offshore companies and private individuals with one of the oldest banks in Switzerland, for asset management as well as for purely commercial transfers.

Andrievskiy Wealth Management doesn’t charge any commissions for bank account openings. * Time period of an account opening: 7-10 days (available by mail) * Price: free of charge * Getting keys of electronic access to the account (e-banking) * Time period of getting keys: 7 days * Registering management mandate according to your strategy: 1 day * The minimum recommended amount to open a Swiss bank account is 500 000 CHF * Receiving reports: quarterly or on request Opening a Swiss bank account in the Internet age is a very easy thing to do.

The main reason for opening a Swiss bank account is for the extreme security and privacy Swiss Banks uphold thanks to Swiss laws that have been in effect for over 75 years. Contrary to popular belief, opening a Swiss bank account does not always mean that you are a tax evader, criminal, or money launderer. Swiss bank accounts can protect one’s money from prying relatives, nasty divorce settlements, lawsuits, and more. Some people just want a Swiss bank account because of the allure and mystery often attached to Swiss bank accounts, but whatever your reasons it is relatively easy to find a bank and open an account.

Till the end of the last century, opening a Swiss bank account may have included visiting the bank of your choice in person, paying hundreds of dollars a year in fees, and putting down a few thousand dollars as an initial deposit. As the Internet has allowed online banking to explode, you can now open a bank account at thousands of banks around the world wherever you are. Offshore bank accounts are available to anyone with money that needs a place to be kept, Swiss banks have a lot of competition these days. Sticking to trusted and insured banks is always the way to go.

While most banks today have secure online banking and security features in place, a Swiss bank account comes built in with some of the strictest privacy laws in the world. Never wire money or deposit money to any site or bank without first verifying that the bank or site is secure and licensed to do banking. Making sure deposits are insured is also a good idea and be mindful that not all banks may be insured or may have deposit insurance limits. Read reviews and ask questions about the Swiss bank you choose before providing any personal information.

Once you’ve found a good Swiss bank and open an account you’ll enjoy financial privacy at a level found only in Switzerland. In 1934, the Swiss passed a law that made it a criminal offense for bankers to reveal the identity of account holders. There are two reasons why this protection was reinforced: Nazi spies: The 1931 crisis led to intensified foreign exchange control in Germany. Hitler promulgated a law whereby any German with foreign capital was to be punished by death, and the Gestapo began espionage on Swiss banks. When three Germans were put to death, the Swiss government was convinced of the necessity to reinforce bank secrecy.

Pressure from the French: The 1932 Basler Handelsbank affair revealed that over 2,000 members of the French elite had accounts in Switzerland. French Leftists took advantage of this to denounce the austerity program of the government. It called for legal authority over French accounts in Switzerland, but to no avail. Unlike American law where law enforcement agencies, the judicial system, and private citizens can gain access to all kinds of financial information, under Swiss law neither the bank’s officers or the its employees are allowed to reveal any information, relative to any account to anyone, including the Swiss government.

No private citizen or their legal representative can ever receive any type of information about anyone’s Swiss bank account under any set of conditions. That includes all types of legal proceedings that the Swiss classify as non-criminal behavior. The Swiss consider tax evasion a political offense. Divorce, inheritance disputes and bankruptcy cases are considered private matters, and as such the secrecy of the account is protected from any legal action to verify the presence of, or attempts to seize any assets. There are some notable exceptions.

The Swiss are bound by a treaty with the US to reveal accounts connected with organized crime, drug trafficking and insider trading. But the final say on revealing the identity of the account holder is up to the Swiss authorities. 7 myths about Swiss bank accounts Swiss bank accounts are only for millionaires. This is not true. The majority of our clients are not major manufacturers or movie stars, but everyday people (business people, computer engineers, civil servants, etc. ). Swiss banks are no longer only for stars. You can open a Swiss bank account with a deposit of only 5,000 Swiss francs.

We even offer accounts with no minimum balance. Money invested in Switzerland yields no interest. Nothing could be more untrue. You can invest your money worldwide from your account in Switzerland. Swiss bankers are among the best finance managers in the world, so it comes as no surprise that they manage over 35% of offshore holdings. It’s impossible to open an account in Switzerland by correspondence This is not true. Most of the accounts that we offer can be opened by correspondence as long as you comply with our opening procedures and provide us with the necessary documents.

What is more, your banking relations can be conducted by correspondence, using the telephone, Internet banking, bank transfer and credit cards. That said, we encourage our customers to meet with their banker at least once in order to get acquainted and see where their money is held. Swiss bank accounts are very expensive to maintain This is not true. Most of the accounts we open don’t charge a cent in annual fees. Even if you would like additional services such as retained correspondence or numbered banking relations, the annual fees are very reasonable.

It is difficult to close a Swiss bank account On the contrary. You can close your account in Switzerland whenever you wish and without any restriction. You will pay no financial penalty. If need be, you will just have to realize your investments. Contrary to many onshore banking practices, your money is not held hostage by Swiss banks. Swiss bank accounts attract only criminals and dictators Not true! The vast majority of Swiss bank account holders are honest people who want to keep their savings in a country renowned for its stability.

Swiss banks are extremely cautious regarding politicians who wish to open an account and they systematically refuse to accept any money that is of dubious origin or poorly founded. Numbered accounts are anonymous There are no anonymous accounts in Switzerland. A numbered account is an account that is identified solely by a number, rather than a name, in order to preserve the strictest confidentiality possible during teller transactions or bank transfers. Only the bank manager and a few select people know the identity of numbered account holders. There exist two different types Swiss bank accounts.

The first is accessible to (almost) anyone. Such an account will offer credit and debit cards, checking or whatever else you may want in a bank account. Opening such an account can be done in person–some Swiss banks have branches here in the US–or by mail. Then there are the Swiss bank accounts you’ve heard about from the movies. These are the numbered accounts, the ones with minimum balances anywhere from $100,000 to $1 million. It’s known as private banking and it’s reserved for folks who have a lot of assets to manage and who demand a lot of service.

The services you receive at a private bank focus on private counseling in aspects of wealth management including investments, tax concerns, and estate planning. The numbered accounts aren’t anonymous, but only a few people know the name of the account holder and Swiss law forbids them from revealing it to most anyone. They can’t acknowledge that you have an account, give out the name of a numbered account holder or reveal any information about the transactions of any account holder. Generally, numbered accounts must be opened in person, though lawyers and/or brokers can perform this service for you by mail.

Your signature and identity have to be authenticated by a notary public or consul, depending on circumstances. If you’ve got the money and want to open such account, here are links to the private banking departments of some well known Swiss banks: Ask Dr. Econ July 2001 What Is the Economic Function of a Bank? Commercial banks play an important role in the financial system and the economy. As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner. They provide specialized financial services, which reduce the cost of obtaining information about both savings and borrowing opportunities.

These financial services help to make the overall economy more efficient. Imagine a World Without Banks One way to answer your question is to imagine, for a moment, a world without banking institutions, and then to ask yourself a few questions. This is not just an academic exercise; many former eastern-block nations began facing this question when they began to create financial markets and develop market-oriented banks and other financial institutions. If there were no banks… * Where would you go to borrow money? * What would you do with your savings? * Would you be able to borrow (save) as much as you need, when you need t, in a form that would be convenient for you? * What risks might you face as a saver (borrower)? How Banks Work Banks operate by borrowing funds-usually by accepting deposits or by borrowing in the money markets. Banks borrow from individuals, businesses, financial institutions, and governments with surplus funds (savings). They then use those deposits and borrowed funds (liabilities of the bank) to make loans or to purchase securities (assets of the bank). Banks make these loans to businesses, other financial institutions, individuals, and governments (that need the funds for investments or other purposes).

Interest rates provide the price signals for borrowers, lenders, and banks. Through the process of taking deposits, making loans, and responding to interest rate signals, the banking system helps channel funds from savers to borrowers in an efficient manner. Savers range from an individual with a $1,000 certificate of deposit to a corporation with millions of dollars in temporary savings. Banks also service a wide array of borrowers, from an individual who takes a loan of $100 on a credit card to a major corporation financing a billion-dollar corporate merger.

The table below provides a June 2001 snapshot of the balance sheet for the entire U. S. commercial banking industry. It shows that the bulk of banks’ sources of funds comes from deposits – checking, savings, money market deposit accounts, and time certificates. The most common uses of these funds are to make real estate and commercial and industrial loans. Individual banks’ asset and liability composition may vary widely from the industry figures, because some institutions provide specialized or limited banking services. Banks Are Only One Type of Financial Intermediary Finally, the U.

S. financial services industry and financial markets are highly developed. In recent decades, many new products and services have been created, as well as new financial instruments and institutions. Today, in addition to banks, there are several other important types of financial intermediaries. These include savings institutions, credit unions, insurance companies, mutual funds, pension funds, finance companies, and real estate investment trusts (REITS). Banks’ assets have grown in recent decades in absolute terms; however, banks have tended to lose market share to even aster growing intermediaries such as pension funds and mutual funds. Still, banks continue to account for a significant share-over 23 percent-of the assets of all financial intermediaries at the end of year 2000, as the chart below shows. The main functions of commercial banks are accepting deposits from the public and advancing them loans. However, besides these functions there are many other functions which these banks perform. All these functions can be divided under the following heads: 1. Accepting deposits 2. Giving loans 3. Overdraft 4. Discounting of Bills of Exchange . Investment of Funds 6. Agency Functions 7. Miscellaneous Functions 1. Accepting Deposits: The most important function of commercial banks is to accept deposits from the public. Various sections of society, according to their needs and economic condition, deposit their savings with the banks. For example, fixed and low income group people deposit their savings in small amounts from the points of view of security, income and saving promotion. On the other hand, traders and businessmen deposit their savings in the banks for the convenience of payment.

Therefore, keeping the needs and interests of various sections of society, banks formulate various deposit schemes. Generally, there ire three types of deposits which are as follows: (i) Current Deposits: The depositors of such deposits can withdraw and deposit money whenever they desire. Since banks have to keep the deposited amount of such accounts in cash always, they carry either no interest or very low rate of interest. These deposits are called as Demand Deposits because these can be demanded or withdrawn by the depositors at any time they want.

Such deposit accounts are highly useful for traders and big business firms because they have to make payments and accept payments many times in a day. (ii) Fixed Deposits: These are the deposits which are deposited for a definite period of time. This period is generally not less than one year and, therefore, these are called as long term deposits. These deposits cannot be withdrawn before the expiry of the stipulated time and, therefore, these are also called as time deposits. These deposits generally carry a higher rate of interest because banks can use these deposits for a definite time without having the fear of being withdrawn. iii) Saving Deposits: In such deposits, money upto a certain limit can be deposited and withdrawn once or twice in a week. On such deposits, the rate of interest is very less. As is evident from the name of such deposits their main objective is to mobilise small savings in the form of deposits. These deposits are generally done by salaried people and the people who have fixed and less income. 2. Giving Loans: The second important function of commercial banks is to advance loans to its customers. Banks charge interest from the borrowers and this is the main source of their income.

Banks advance loans not only on the basis of the deposits of the public rather they also advance loans on the basis of depositing the money in the accounts of borrowers. In other words, they create loans out of deposits and deposits out of loans. This is called as credit creation by commercial banks. Modern banks give mostly secured loans for productive purposes. In other words, at the time of advancing loans, they demand proper security or collateral. Generally, the value of security or collateral is equal to the amount of loan.

This is done mainly with a view to recover the loan money by selling the security in the event of non-refund of the loan. At limes, banks give loan on the basis of personal security also. Therefore, such loans are called as unsecured loan. Banks generally give following types of loans and advances: (i) Cash Credit: In this type of credit scheme, banks advance loans to its customers on the basis of bonds, inventories and other approved securities. Under this scheme, banks enter into an agreement with its customers to which money can e withdrawn many times during a year. Under this set up banks open accounts of their customers and deposit the loan money. With this type of loan, credit is created. (iii) Demand loans: These are such loans that can be recalled on demand by the banks. The entire loan amount is paid in lump sum by crediting it to the loan account of the borrower, and thus entire loan becomes chargeable to interest with immediate effect. (iv) Short-term loan: These loans may be given as personal loans, loans to finance working capital or as priority sector advances.

These are made against some security and entire loan amount is transferred to the loan account of the borrower. 3. Over-Draft: Banks advance loans to its customer’s upto a certain amount through over-drafts, if there are no deposits in the current account. For this banks demand a security from the customers and charge very high rate of interest. 4. Discounting of Bills of Exchange: This is the most prevalent and important method of advancing loans to the traders for short-term purposes. Under this system, banks advance loans to the traders and business firms by discounting their bills.

In this way, businessmen get loans on the basis of their bills of exchange before the time of their maturity. 5. Investment of Funds: The banks invest their surplus funds in three types of securities—Government securities, other approved securities and other securities. Government securities include both, central and state governments, such as treasury bills, national savings certificate etc. Other securities include securities of state associated bodies like electricity boards, housing boards, debentures of Land Development Banks units of UTI, shares of Regional Rural banks etc. 6.

Agency Functions: Banks function in the form of agents and representatives of their customers. Customers give their consent for performing such functions. The important functions of these types are as follows: (i) Banks collect cheques, drafts, bills of exchange and dividends of the shares for their customers. (ii) Banks make payment for their clients and at times accept the bills of exchange: of their customers for which payment is made at the fixed time. (iii) Banks pay insurance premium of their customers. Besides this, they also deposit loan installments, income-tax, interest etc. s per directions. (iv) Banks purchase and sell securities, shares and debentures on behalf of their customers. (v) Banks arrange to send money from one place to another for the convenience of their customers. 7. Miscellaneous Functions: Besides the functions mentioned above, banks perform many other functions of general utility which are as follows: (i) Banks make arrangement of lockers for the safe custody of valuable assets of their customers such as gold, silver, legal documents etc. (ii) Banks give reference for their customers. iii) Banks collect necessary and useful statistics relating to trade and industry. (iv) For facilitating foreign trade, banks undertake to sell and purchase foreign exchange. (v) Banks advise their clients relating to investment decisions as specialist (vi) Bank does the under-writing of shares and debentures also. (vii) Banks issue letters of credit. (viii) During natural calamities, banks are highly useful in mobilizing funds and donations. (ix) Banks provide loans for consumer durables like Car, Air-conditioner, and Fridge etc.

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Virtual Banks

Introduction Continuous innovation in technology has altered the way in which business is conducted in each industry. This is especially true for that of financial services or banking. The banking world has evolved tremendously since its inception with most recent trend being towards the development of an online platform. Most Institutions currently offer financial solutions via branches as well as over the Internet. The appeal of online activity has in turn led emergence of online only or “virtual” banks. Virtual Banks Defined

A virtual bank is one that exists online only in which nearly all financial transactions are conducted over the Internet. The differentiating factor for online banks is the absence of physical branches and ATMs. Also referred to as direct banks, these entities offer identical products and services to its compared to traditional “brick and mortar” institutions. This includes opening checking and high interest savings accounts with which bill payments, transfers, deposits and withdrawals can be made. Client’s can access money via partner ATMs or attain cash back at point of sale at certain merchants.

Deposits are made directly, by mailing a check, and partner ATMs. Moreover, investments, lending products and professional advice can be acquired through the respective website. Furthermore, most virtual banks are insured by the FDIC (Federal Depository Insurance Corporation). Brief History Banks began to move online with the commercialization of the Internet in the 1990s. Traditional brick and mortar banks were seeking ways to reduce costs simultaneously providing quality products and services. The solution was discovered by the development of an online system.

Considering the success of the launch of online banking, institutions began to expand their online presence through website innovation and improvements as well as by diversifying their online product and services offerings. Following the establishment of an easily accessible and profitable online banking structure, virtual online only banks emerged. These entities were successful in overhead cost reduction having only to support the costs of a single online computer network rather than those of operating physical branches and ATMs. This enabled the provision of higher returns to their clients.

The first fully functional direct bank insured by the FDIC was the Security First Network Bank, based in Atlanta, It began operations on October 18, 1995 and was eventually bought out despite having been the first to prove the viability of virtual banks. Competition The rise of online only banks has stimulated further competition within the financial industry. These institutions face heavy competition from traditional counterparts who excel in both online and personal customer service experience. Each provides respective benefits and drawbacks however; clients may choose to utilize both options and make transfers between the two.

Major Players There are several major players within the virtual banking segment of the financial services industry. INGDirect, is currently ranked first amongst competitors. HSBCDirect follows ranked second. Others include: Ally Bank, Banco Best, Discover Bank, First Direct etc. Use Amongst Canadians: Some Statistics Online banking is experiencing continuous and rapid growth. It has become the most popular means of conducting financial transactions. According to the Canadian Bankers Association, more than half of Canadians have used online banking within the last year.

Its use is increasing amongst all age groups as the ease and convenience of these innovations is valued. ? 47 per cent of Canadians now use the Internet as their main means of banking, up from only eight per cent 12 years ago. ? 53 per cent of young Canadians between the ages of 18 and 34 say online is their main way of banking as do 45 per cent of those 55 or older. ? 41 per cent of Canadians report that their use of online banking has increased, while only four per cent say it is on the decline. (According to the Canadian Bankers Association) Benefits vs.

Drawbacks of Virtual Banks Online banking websites are widely used in today’s society. The way in which individuals conduct transactions is dependent on accessibility and time constraints. One must also consider desired return and the importance of lower interest rates. Customers must weigh the benefits and drawbacks of each option using these criteria when choosing between a traditional branch system and an online only bank. There are both advantages and disadvantages in respect to virtual banks Advantages There are several benefits to using an online only bank.

These include convenience, higher returns, ease of use and environmental friendliness. A. Convenience Online only banks are convenient for those subject to time constraints such as working long hours, attending school and caring for a family. Most branches are limited to open hours of between 8 am and 5 pm, and are closed on weekends. These conflict with the work and school hours of many people. For this reason, numerous individuals are unable conduct their required banking transactions at a branch. Moreover, branches may be difficult to reach for the elderly and physically impaired.

Virtual banks solve these issues by being accessible and operable 24hours a day, 7 days a week. Further, with the development of smart phone applications, Virtual banks have become even more advantageous in terms of convenience and accessibility. With the creation of a bank application the customer can easily access his bank account balance with a touch on his phone. B. Higher Returns and Lower Transaction Fees Customers can benefit from competitive rates by bringing their business to virtual banks. Lower rates are offered on loans as well as higher returns on savings accounts and investments.

Direct banks can afford to provide their customers with these advantages due to the reduction of overhead costs caused by the elimination of branches and ATMs. These institutions spend significantly less on human resources and equipment than do traditional banks. In addition to competitive rates, virtual banks do not charge fees for financial transactions. A client may conduct an unlimited number of transfers, bill payments, deposits and withdrawals free of charge creating big savings for customers in turn. Compared to traditional banks, customers will pay less for more. C. Ease of Use

The ease of use of virtual banking products and services is another major benefit. This is facilitated by the clarity, design and value added features of the respective bank’s website. Opening an account can be easily done on the institutions’ website submitting all required documentation over the net. The steps for each desired transaction are included and help is provided upon request. Once familiar with the internet and website navigation, virtual banks are extremely easy to use. D. Environmentally Friendly Finally, Online-only banks prove to be an eco friendly alternative to traditional institutions.

Paper waste is almost entirely eliminated as all required documents are directly uploaded and submitted through the respective bank’s website. There is no longer the need for transportation lower fuel emitted by vehicles. Also, the elimination of branches and ATMs decrease requirements for technological equipment and thus lower energy consumption. Disadvantages Although the technological advancements of virtual banks have created much needed solutions for today’s banking industry, some of its benefits are offset by several drawbacks.

These include; the lack of a personal experience, transaction problems, service issues, the learning curve and online security. A. Face-to-Face Banking Relationship Virtual banks eliminate the face-to-face relationship that is created in the traditional banking environment. Building a relationship with bank representatives such as account managers, loan officers or tellers facilitate the process in which customers fulfill banking needs and are important to many people. Bank representatives resolve issues such as changing terms in their banking agreements or reversing undeserved fees.

As well, these representatives get to know their clients better, and are able to tailor the banking services to their unique needs and personal circumstances. B. Transaction problems Complex transactions or errors may require direct and timely assistance from bank representatives. A traditional bank can be called for support or a visit to the branch can quickly solve the issue at hand. Customers of virtual banks do not have the option of attaining timely aid, as this requires waiting on the phone for a representative in hopes of solving the issue at hand.

C. Service Issues Another disadvantage stems from the lack of human resources amongst virtual banks. Regardless of accessibility, certain transactions may require signatures or stamps from a financial institution in order to be processed. These are transactions, which cannot be processed through a virtual bank. As well, traditional banks thrive on the provision of excellent customer service. This is a major factor in customer loyalty and retention as well the acquisition of new long-term client relationships.

Virtual banks cannot compete on this matter as only standard services are provided to all clients equally over an impersonal online venue. D. Learning Curve Most of the individuals who visit a branch regularly will find the transition to virtual banks quite complex at first. This is due to the fact that virtual banking pages can be hard to navigate and might be complicated for those who are unfamiliar with the virtual bank page or the Internet in general. Consequently, time may be required for traditional bank users to adjust to this technologically advanced service.

E. Online Security As a technological society, security has become a primary concern to all Internet users across the globe. Issues ranging from fraud to identity theft decrease consumer confidence in the Internet driven services offered in today’s economy. Virtual banks are governed by the same laws and regulations implemented by the FDIC within the traditional banking sector. Online banking accounts can be subject to hackers, phishing or malware that may disrupt processes or allow the processing of unauthorized activities within these accounts.

Traditional banks offer solutions such as scanned copies of cleared checks to its clients in order to prevent fraud. Virtual banks cannot offer substantial record keeping measures as such to identify and prevent such interferences. Implementation of Virtual Banks in Canadian Banking System Given the advantages that online banks provide, it is widely believed that most of retail banking operations will be done through electronic means in the near future. Does that necessarily cause established banks in Canada to look outdated and force them to go out of business?

In our point of view, those banks will remain the major players in the future and the only change that we believe is going to take place is the adaptation of these banks to changes in technology and emergence trends. Let’s recall the introduction of access cards in the banking system. Though this introduction brought a large amount of advantages with it, it was still confronted with considerable resistance. Today, we are to some extent in the same position. The trend of virtual banks is inevitably coming, but it also brings disadvantages into play, as previously discussed.

Since it takes time for people to get comfortable with new innovations, banks can establish a plan with short and long term goals to accommodate the changes in the industry. We believe the plan below will help modernize the big banks in Canada towards the trend of Direct Banking. • Create a parallel direct bank for the sole purpose of virtual banking Our first suggested step is the creation of a banking line that solely operates online similar typical virtual banks. Customers are expected to move their funds from conventional accounts to the online-only accounts because of their convenience and advantages.

The cost of maintaining such virtual accounts is considerably lower; hence banks can offer competitive rates as a tangible incentive for customers to switch to direct banking. • Increase the number of ATM machines Banks should make it more convenient for their customers to access and deposit cash without having to go to a teller. ATM machines should be more available to stakeholders; either through direct investment of the bank or through outsourcing to one of the established ATM Machine providers operating in Canada.

This was the strategy of American Direct Banks to ameliorate their service and attract even more customers. After all convenience is a key aspect clients look for when it comes to their banking choice. • Reduce the number of branches In order to meet required profit margins, and given the incurred expenses caused by the additional benefits they will be offering (more competitive rates), banks are expected to cut their costs. Since operations will take place in a virtual environment, brick and mortar branches will become less necessary.

Banks at that point can start merging their branches and close-down others. Downsizing of some locations could also be an option. For the above plan to be successful, it is essential to monitor the change in consumer preferences and implement each step accordingly. After establishing a plan, it is essential to study the feasibility of it given the circumstances. The literacy rate in Canada has been 99% in 2003 and is close to perfect score nowadays (Gordon, 2003). Moreover, In 2010, close to 80% of Canadian households had access to the Internet (Statistics Canada Web, 2011).

The country possesses one of the most advanced communication networks in the world making direct banking technically easy to introduce and more importantly, logical. References Canadian Bankers Association. How Canadians Bank. November 9, 2012. http://www. cba. ca/en/media-room/50-backgrounders-on-banking-issues/125-technology-and-banking. Accessed November 18th, 2012 Canadian Internet Use Survey, May 25th, 2011. Statistics Canada Web. http://www. statcan. gc. ca/daily-quotidien/110525/dq110525b-eng. htm, accessed November 18th, 2012. Gordon, Elaine H. Gordon, Edward E. (2003). Literacy in America: historic journey and contemporary solutions. New York: Praeger. p. 255. ISBN 0-275-97864-8. Investopedia. The Pros and Cons of Internet Banks. April 14, 2011. http://www. investopedia. com/articles/pf/11/benefits-and-drawbacks-of-internet-banks. asp. Accessed November 18th, 2012 Weisbaum, Herb. Looking for Better Rates? Visit a Virtual Bank. July 29, 2009. http://www. msnbc. msn. com/id/32206206/ns/business-consumer_news/t/looking-better-rates-visit-virtual-bank/#. UKRTuxzok1A. Accessed November 18th, 2012

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Citizen Bank Case

The merger of U. S. Citizen Bank and Louisiana Purchase Bank (LPB) in 1998 resulted in a formation of a financial powerhouse possessing core competencies in commercial lending and innovation. Upon recognizing the much needed annuity-driven market potential existing within the U. S. college population, the LPB pioneered the student credit card program in 1989. Indeed, the student credit card program proved to be more profitable with net income margin around 6 percent compared to that of 4 percent for non-student product offerings.

In fact, LPB was collecting revenue on 60 percent of its accounts. The sheer magnitude of credit usage among college students caught public’s attention. Well respected college professors claimed direct correlation between credit institutions’ success and college students’ irresponsible financial behavior leading to debt and higher drop-out rates.

Due to this increased public awareness, The U. S. General Accounting Office (GAO) initiated an investigative report to further analyze the magnitude of student credit card usage and its consequences on students’ academic, financial, and personal well-being. The GAO asked LPB’s head of Student Card Services division, Michelle Jeffries, to participate in a survey soliciting data pertinent to their college student accounts as well as information regarding LPB’s marketing approach to this demographic.

Data submitted would be compared to that of other (unnamed) financial institutions and published (in aggregate) without identifying individual responders. In addition, Michelle Jeffries was notified that a popular investigative television series, ’60 Minutes’ will be featuring a story on student credit cards and plans to portray credit card issuers in a negative light similar to that of tobacco companies. I believe Michelle is in the best position to be the key decision maker due to the fact that she has the most insight into divisional operations, objectives, and values.

She is the leader of the student credit card services division and should be the one to decide and communicate next steps – after having gathered input from other constituents – including the President, Risk Manager and other employees. Michelle needs to consider the interests of U. S. Citizen Bank, its employees and shareholders, all calling for a profitable and prospering organization.

In addition, she needs to consider the rights of general public and media to know what U. S. Citizen Bank’s ultimate objectives are, including its corporate values and goals. Does U. S. Citizen Bank need to have a moral obligation to look after the best interests of customers it serves? If so, what is in college students’ best interest when it comes to credit cards? Is it ethical to extend credit to students? Finally, Michelle needs to think about her own virtues and character in addition to those of the organization. What virtues does the company value the most? Do those align with her personal virtues?

The most important ethical issue at hand is the implied allegation that success of U. S Citizen Bank’s Student Card Services division was at the expense of college students’ financial well-being. That begs the question of moral obligation and the ethics of extending credit to college students. Another important ethical issue is U. S. Citizen Bank’s response to the public in regards to the GAO survey as well as 60 Minutes. The bank is being asked to disclose confidential customer information as well as their business and marketing plans.

Lastly, Michelle needs to marry her own personal values to those of the organization which she leads. She has a solid track record of being honest, fair and ethical and she needs to lead the organization keeping those core values in mind. Lastly, she needs to assure those shared values are actually being practiced. Michelle is presented with the following possible options. She could disregard GAO’s request for information on grounds of protecting customer privacy as well as corporate business and marketing plans in terms of promotional and marketing strategies.

She could also choose not to publicly address 60 Minutes to avoid the possibility of self-imposed negative attention on U. S. Citizen Bank in relation to the series. Another viable option would be to submit the requested information to the GAO as well as publicly address the 60 Minutes series while firmly defending company’s current strategy without identifying any holes or areas for improvement. The third option would be to respond to the GAO’s request as well as release a public statement in response to the 60 Minutes series clearly identifying U. S. Citizen Bank’s corporate values, objectives and responsibilities to all of its stakeholders.

In both responses, Michelle could acknowledge things the corporation believes they’ve done right as well as things they could and plan to improve on in response to helping college students become more financially responsible when it comes to credit card debt. Michelle should respond to the GAO survey by submitting requested account data and marketing information while emphasizing company’s strong commitment to customer privacy and onfidentiality of information submitted.

She should address the 60 Minutes series by clearly identifying and defending her organization’s values and commitment to its customers. She should highlight company’s accomplishments and strides in the area of student credit card education programs. Furthermore, she should identify areas of improvement with well-defined action plans that will elevate the organization to the next level vs. merely pointing out weaknesses to the competitors.

The overall theme should re-iterate company’s commitment to all of its stakeholders, acknowledging what they’ve done to support that commitment followed by an action plan to further evolve and improve their student credit card education programs. They should raise the bar for all credit card issuers on educating college students on responsible use of credit cards. More importantly, they should publicly acknowledge their ethical responsibility to provide customers with information necessary to make sound financial decisions.

Michelle also needs to ensure external communication aligns with the internal translation in order to successfully execute publicly announced action plan. Internal stakeholders need to be assured that external message is honest and action-driven and not just a media ‘spin’ to protect company’s interests. An internal communication to employees and shareholders should clearly translate the external message into sustainable long-term profitability and well-being of the company.

Considering the interests of all parties involved, the suggested approach is clearly the right one. By publicly acknowledging and recognizing an increased concern surrounding college students’ credit card debt, they will gain public’s sympathy and respect. By choosing to do something about it via a well defined action plan, they will gain public’s trust. By gaining public’s trust, they will gain a more loyal and increased customer base which will contribute to company’s long-term profitability.

In addition, this approach will clearly communicate company’s values and traits of responsible corporate citizenship which will set an example for other companies in their industry, including their competitors. One might argue the organization should really re-evaluate the business they are in as it may not be morally responsible to extend credit cards to students. I would argue that the morality question certainly does come into play and should definitely be considered when deciding on tactics used to promote and market credit cards to students.

However, the actual extension of credit to students, by its nature, is not unethical. In fact, when utilized properly, it serves students’ interests by allowing them to build credit history while teaching financial responsibility and spending within means. In conclusion, while credit lending geared towards college students is not considered unethical business to be in, marketing techniques utilized to promote such products and service may certainly cross ethical boundaries.

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Determinants of Bank Profitability in Nigeria

CHAPTER ONE INTRODUCTION 1. 0BACKGROUND INFORMATION TO THE STUDY The study of profits is important not only because of the information it provides about the health of the economy in any given year, but also because profits are a key determinant of growth and employment in the medium-term. Changes in profitability are an important contributor to economic progress via the influence profits have on the investment and savings decisions of companies. This is because a rise in profits improves the cash flow position of companies and offers greater flexibility in the source of finance for corporate investment (i. . through retained earnings). Easier access to finance facilitates greater investment which boosts productivity, productive capacity, competitiveness and employment. The existence, growth and survival of a business organization mostly depend upon the profit which an organization is able to earn. It is true that when Profitability increases the value of shareholders may increase to considerable extent. The term profitability refers to the ability of the business organization to maintain its profit year after year.

The profitability of the organization will definitely contribute to the economic development of the nation by way of providing additional employment and tax revenue to government exchequer. Moreover, it will contribute the income of the investors by having a higher dividend and thereby improve the standard of living of the people. In order for a business entity (whether public or privately owned) to continue to prosper, there is need for its earnings to be relatively stable for its expansion and growth over time.

In addition to its level of earnings, its external environment must also be carefully understood and reliably anticipated (Burns and Mitchell, 1946). Earnings and business environments are so serious issues that a business must study and understand in order to face its opportunities and threats with vigor and determination. Where for instance, the business does not recognize the effects of changes in external environment which may necessitate changes in business earnings, it may suffer some losses consequently.

This perhaps explains why there has been continuing search by modern businesses to improve their methods of production necessary to cut down costs, and to develop new attributes or products, which may have wider appeal and satisfaction to their customers. On the other hand, the environmental and cyclical conditions are usually volatile and Dynamic (Sabo, 2003). This underscores the need for business firms to be able to reliably conduct forecast not only for their future demands or sales for their goods and services but also other variables that affect them directly such as their personnel and future profits.

The volatility of the changes in the variables from the external environment in specific ways to the immediate factory level and to the remote industry and task environments can sometimes be very significant. These calls for managers’ ability to appreciate and apply formal forecasting techniques to assist their banks achieve this veritable task. The determinants of profitability are empirically well explored although the definition of profitability varies among studies.

Disregarding the profitability measures, most of the banking studies have noticed that the capital ratio, loan-loss provisions and expense control are important drivers of high profitability. In this study, the drivers that would be considered are in two categories namely endogenous (internal) and exogenous (external) drivers or factors of Profitability. Internal drivers of bank performance or profitability can be defined as factors that are influenced by a bank’s management decisions. Such management effects will definitely affect the operating results of banks.

Although a quality management leads to a good bank performance, it is difficult, if not impossible, to assess management quality directly. In fact, it is implicitly assumed that such a quality will be reflected in the operating performance. As such, it is not uncommon to examine a bank’s performance in terms of those financial variables found in financial statements, such as the balance sheet and income statement (Krakah and Ameyaw, 2010). External determinants of bank profitability are factors that are beyond the control of a bank‘s management. They represent events outside the influence of the bank.

However, the management can anticipate changes in the external environment and try to position the institution to take advantage of anticipated developments. The two major components of the external determinants are macroeconomic factors and financial structure factors (Krakah and Ameyaw, 2010). In summary, it appears previous empirical research has suggested a possible connection between bank profitability and various internal and external determinants like Bank Assets, Loan-Loss Provisions, Total Deposit and Inflation, but is far from definitive as ifferent authors have made use of the inclusion and exclusion of different variables in their studies. Hence, our study will try to shed more light on this controversial issue by reviewing more empirical literatures on opposing sides of the topic and finally drawing conclusions from our findings from the mode of data analysis we intend to carry out. 1. 1STATEMENT OF THE RESEARCH PROBLEM The Federal Government of Nigeria and the Central Bank of Nigeria (CBN) have perennially sought permanent measures that would enhance the profitability and stability of banks operating in the Nigerian banking industry.

Unfortunately, they have never completely succeeded in achieving this feat. For instance, from 1987 – 1991 financial sector reforms (intended to enhance competition in the sector, mobilize savings and lead to a more efficient allocation of resources) were implemented, encompassing elements of liberalization (such as the decontrolling of interest rates) and measures to enhance prudential regulation and tackle bank distress (Oluranti, 1991).

Also, between 1990 and 2004, bank regulators increased the minimum share capital requirement for banks operating in Nigeria five times, namely in 1991, 1997, 2000, 2001 and 2004 (Aburime and Uche, 2006). However, these measures were unsuccessful in curtailing the spate of bank distress and failures in the1990s and beyond (Oluranti, 1991; Beck et al. , 2005 and Brownbridge, 2005). Currently, a set of banking sector reforms have also been introduced to ensure inter alia a strong and reliable banking sector (Okagbue and Aliko, 2005).

Unfortunately, if the historical antecedents of financial sector reforms in Nigeria are anything to go by, the current reforms may also not help to improve bank profitability and stability in Nigeria. Another major factor, which has often not been given appropriate attention, is the issue of strategic planning through forecasting and prediction of future performance indices of commercial banks (deposit money banks). To achieve this task, a bank must recognize and anticipate the important Variable affecting its profit determination.

The works of Stevens (1999), Blyther (2000) and Naceur (2003) established the inability of the business firms to adequately anticipate and forecast several operating variables in them as a very critical factor in explaining their non-performance. They argued that it is dangerous for a firm to fail to anticipate its cash flow sales, profits and production under whatever situation it finds itself. Given the efforts stated above banks need to appreciate the role of other indicators in enhancing the profitability or performance for that matter.

Indeed examining the determinants of corporate profits in the banking sector in Nigeria is crucial, if these banks are going to remain competitive, efficient, and viable taking into cognizance the challenges that befall competition in the industry. 1. 2RESEARCH QUESTIONS The motivation behind this study stems from the fact that in the past decade or so, a lot of tremendeous changes has been witnessed in the Nigerian banking industry thereby leading to a number of reforms that has seen players in the banking industry transform from one level to another.

Hence, this study will sought to answer the following research questions: 1. Is there a long run and short run relationship between bank profitability and its determinants? 2. To what extent are discrepancies in First Bank’s profitability due to variations in endogenous factors  under  the  control  of  bank  management as well as exogeneous factors under the control of the macroeconomy? 3. Given previous empirical studies on this topic, can it be deduced that First of Nigeria actually makes sustainable profits in the last three decades? . 3OBJECTIVES OF THE STUDY The sole objective of this study is to provide a framework to investigate the factors or indicators intrinsic in the bank’s asset structure that had impacted on their profitability, and performance for that matter, and make policy recommendation that could be used by bank managers in their policy decisions in the future. Specifically the study seeks to achieve the following Objectives: 1. Examine the profitability of First Bank Nigeria Plc during the last three decades. 2.

Study  the  key  endogenous or company-level value  drivers  of  performance  or profitability  of  the commercial bank in Nigeria using FBN Plc 3. Study  the  key  exogenous or macroeconomicvalue  drivers  of  performanceor profitability  of  the commercial bank in Nigeria using FBN Plc 4. To find out if any long-run or short-run relationship exists between Profitability variables and its determinants using FBN Plc. 5. Make policy recommendations regarding the key drivers of profitability at First Bank of Nigeria as well as other commercial banks in the country based on the empirical findings. 1. 4SIGNIFICANCE OF THE STUDY

Given the relation between the well-being of the banking sector and the growth of the economy (Rajan and Zingales, 1998; Levine, 1998), knowledge of the underlying factors that influence the financial sector’s profitability is therefore essential not only for the managers of the banks, but also for numerous stakeholders such as the central banks, bankers associations, governments, and other financial authorities. Knowledge of these factors would be useful in helping the regulatory authorities and bank managers formulate future policies aimed at improving the profitability of the Nigerian banking sector.

Furthermore, at the present time, the type of analysis to be employed in this study is completely missing in the literature concerning profitability in the banking sector in Nigeria. 1. 5SCOPE OF THE STUDY Even though there is an existence of numerous empirical studies on the determinants of corporate profitability in the banking sector almost none exists regarding banks case studies in Nigeria, with one exception though in a study by Krakah and Ameyaw (2010) who found a significant correlations between Bank’s Financial Statement and Macroeconomic variables with Profitability given case studies of two banks in Ghana.

However, since their study relied more on a cross-sectional approaches from two different banks, this study collects a broad array of profitability determinant indicators, specifically, using data solely from First Bank of Nigeria from 1980 to 2010, we will be examining different measures and linkages of endogenous and exogenous variables like total assets, interest income, total overhead expenses, money supply, annual inflation rate and Return on Assets (ROA).

Furthermore, since the determinants of profitability are a complex and multi-faceted concept, as such no single measure will capture all aspects of the internal and external determinants in the Financial Statements of First Bank to be used in this study. 1. 6PLAN OF THE STUDY For the purpose of simplification and clarification, this study will be drafted in the following manner: Chapter one will begin with a brief introduction on the topic of our study assessing a few opinions on what some authors have to say relating to the topic of our study.

This chapter continues by analyzing some of the problems in the Nigerian economy as it relates to the banking industry as a catalyst for economic growth, then followed by the research questions. The statement of objectives to the study follows afterwards then the significance of the study comes next. An historical overview detailing various facets of developments in the Nigerian banking industry from pre-independence to date is also examined in this chapter. This chapter will be concluded by giving the scope of study.

Chapter two of this study, which is the Literature Review and Theoretical Framework, will begin with a brief introduction of what the chapter aims to achieve and how it will be structured. This will be followed by stating various theoretical frameworks to be used in the study. Furthermore, an empirical review of related literatures on the determinants of banking industry profitability as seen by different authors who have written widely on the topic published their findings on this issue would be discussed.

This chapter continues by reviewing the Nigerian banking industry performance over the year with a comparative analysis of all the major banks making up the industry. This will be achieved through the use of charts and graphs. Finally, this chapter will be rounded-off by the historical existence of First Bank of Nigeria Plc as well as the corporate profile of the bank. Chapter three, which is the research methodology chapter of this study, will also begin with a brief introduction to the chapter.

This will be followed by the method of data collection section as well as method of data analysis section where we will explain the various methods of analysis like Multiple Correlation Matrix, Cointegration Regression Model as well as the Error Correction Mechanism of time series econometric analysis intended to analyze our data is explained. Also in this chapter, we shall state the various regression models to be estimated for this study as well as an explanation of the justification of the variables to be included in the model.

This chapter will also explain the how the data gotten for this study will be formatted in Ratio forms to suit need of our intentions for this study. In addition, the statement of hypothesis and assumptions behind our model will be stated in this chapter and the various reasons behind the sampling procedure of arriving at FBN Plc for this study will be explained. Finally, this chapter will be concluded by explaining ‘A Priori’ Expectations of each variable within the model and the yardsticks in econometric measurement to be used in acceptance or rejection of the various hypothesis stated for this study.

Chapter four, which is the data Presentation, Analysis and Interpretation chapter, will be introduced stating what should be expected as the chapter moves from section to section. Here, the data used for this study will be presented in a tabular format then followed by the analysis and estimation of the explicit model already stated in chapter three of this study. Finally, this chapter is concluded by interpreting the models estimated via different methods of econometric analysis.

Chapter five is the Summary, Policy Recommendations and Conclusion chapter of this study. This chapter, like the previous ones before it also begins with an introduction of what to expect, this is followed by a summary of our study thus far. Hence, policy recommendations would be made under a different section and finally, the conclusions of our finding on the study as it relates to the analysis made in chapter four of the study would be highlighted in this study.

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The Tyra Banks Show and Diversity in the Media

Among the most popular among current TV programs is the Tyra Banks Show which is taped live in front of a live audience in New York. The show, which lasts for an hour and is aired in syndication by Warner Bros., debuted in September 2005. Currently running in its third season, the Emmy Award-winning show has aired over 357 episodes and is set to run for at least two more seasons.(www.wikipedia.com)

The Tyra Banks Show is a talk-show fashioned after Oprah Winfrey’s Oprah, which banks on its anchor/creator’s celebrity and fame to draw viewers. The show itself is named after the celebrity who lends credibility and ensures a captive audience from the ranks of millions of adoring fans. The show’s main target, however, are women or specifically, young African-American women who can easily identify with or who wish to emulate its host, Tyra Banks.

As a talk-show, the Tyra Banks Show is packaged by its producers to provide an equal dose of information and entertainment to its audience, covering a wide variety of topics from beauty to women’s issues and concerns. Among the notable episodes, however, are the ones where the former supermodel goes on undercover missions to reveal to the viewers the experiences of women in vulnerable situations from Tyra’s own first hand accounts (e.g. women who suffer from weight discrimination, women in prison, and women working in strip clubs).

The show also tackles the issue of racial discrimination.(www.tyrashow.com) Interestingly, the Tyra Banks’ success is resoundingly similar to Oprah Winfrey’s own success as a celebrity-host due to the fact that each episode of her TV show puts her in unique situations. For instance, Tyra is made to put on heaps of prosthetics to become a 350-pound woman so she can feel how it feels to be discriminated against because of her weight. She also spent a day in prison to better understand the reasons of women’s incarceration.

Clearly, the Tyra Banks Show is an attempt at addressing the diversity in American culture and identity. It was created to provide women, especially African-American women, in response to the growth of the African American population which was seen by advertisers as a “profitable base for sustaining minority media.” (Dickson 2) Consequently, there has been an observable increase not only in the number of African-American actors, actresses, and TV hosts as the demand for African American-oriented television programs have risen. Undeniably, Tyra’s success in breaking through the male-dominated Hollywood talk show industry is a feat in itself and her being African-American at the same time makes it even more tempting to view her as the epitome of empowerment.

Her success in The Tyra Banks Show parallels her success as a runway model at a time when White was the ultimate symbol of beauty and the public was reluctant to widen its standards. Tyra Banks is therefore the perfect representation of a woman who broke through stereotypes, which adds gravity to her capacity and credibility to discuss issues and problems that women and African-American populations confront. However, Tyra’s own identity as a media-invented stereotype of beauty for African-Americans (waif-thin, tall, flawless skin, perfect white teeth) has the ability to contradict the causes she supports.  Tyra’s background as a supermodel, coupled with segments in the show featuring beauty tips and “Tailored by Tyra makeovers” also negate her advocacy for a beauty ideal that goes beyond physical appearance.

Nevertheless, the Tyra Banks show fosters a better understanding of diversity and multi-culturalism. Despite its limitations, its success is a revealing indication that African-American representation is slowly but surely gaining ground in the mainstream media. The show is also a reflection on the lives and culture of African-American communities, which makes it an important source of knowledge for understanding and appreciating the diversity in American society.

Works Cited:

Dickson, J. (2006). The representation of African-American women in television advertisements. McNair Scholars’ Journal, 1: 1-12.

The Tyra Banks Show website accessed on 03/15/2008 from <www.tyrashow.com>

Wikipedia.com accessed on 03/15/2008 from <www.wikipedia.com>

 

 

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Washington Mutual Bank: Case for Consumer Rights

McKell v. Washington Mutual Bank (2006) is a case for consumer rights highlighting the prerogative of the consumers to ‘buy at the right price.’  In this case, the consumers were not buying goods and services.  Rather, the market consisted of real property; and one of the stakeholders – Washington Mutual, Inc. – was overstating the prices of “underwriting, tax services, and wire transfer fees in conjunction with home loans.” [1]  Washington Mutual Bank had overcharged the buyers for these services – alleged the plaintiffs (few of the buyers) – when the actual prices that the bank had paid to service providers for the self same services were less.

The defendants (Washington Mutual) were simply making a profit on the services they had bought off different providers and selling to other members of society that needed them at the time.  Is this kind of profit making unlawful? – From the viewpoint of consumers, it may very well be unlawful, seeing that all consumers want to pay the ‘best prices.’  However, if the consumers were to stop using the services of Washington Mutual Bank, they would possibly have to visit various service providers for underwriting, tax services, and wire transfers, and still come to the defendants for home loans.

In the integrative business of Washington Mutual, everything is taken care of.  In view of this, it was decided by a trial court in California that the complaint made by the plaintiffs must be dismissed on the grounds that there had been no written agreement between the parties to state that Washington Mutual, Inc. cannot charge in excess of the prices that it pays to the service providers.  The case went into appeal.  It is going to continue being considered; in fact, the California Court of Appeal has agreed with a part of the plaintiff’s complaint and agreed to review this consumer case further.[2]

The main reason why the McKell v. Washington Mutual Bank case has still not been shut is that consumers feel deceived when they are told that they are being charged simply the prices of the services bought, when in fact the sellers have overcharged.  Although profit making is not considered illegal, in this case the consumers feel cheated because they had been informed by Washington Mutual that they were being charged the prices of certain services that cost a certain amount.

As it turned out, the prices charged included a huge markup, while the consumers continued to believe that they were paying the ‘right prices.’  The plaintiffs failed to produce all necessary documents to support their allegations.  Nevertheless, the fact that Washington Mutual had failed to mention to the consumers that a service fee was being added for the services in question – has landed the bank in hot water.  Moreover, by charging a price that is higher than the market price, the bank is responsible for going against “Congress’s stated intent to protect consumers from unnecessarily high settlement charges.”[3]  Indeed, this is the strongest argument to keep the McKell v. Washington Mutual case going in the near future.

Washington Mutual Bank may be charged with near-monopolistic practices in the coming days, although it has not been determined whether the bank’s competitors are charging markups that are vastly dissimilar.  Assuming that the competitors of the bank are charging much less than Washington Mutual, the justice system may very well decide that Washington Mutual must pay the legal charges of unfair competition.

Seeing that both federal and state laws demur near-monopolistic practices, that is, charging prices that are much higher than those at the market equilibrium – the Californian courts may eventually end up with a strong hand protecting the interests of the consumer and charging Washington Mutual Bank much more than it charged its consumers through allegedly “unfair” practices.[4]

Works Cited

McKell v. Washington Mutual: IN THE COURT OF APPEAL OF THE STATE OF

CALIFORNIA, SECOND APPELLATE COURT, DIVISION ONE. 2006. 4 June 2007.

<http://classactiondefense.jmbm.com/mckellclassactiondefense_opn.pdf>.

McKell v. Washington Mutual-Class Action Defense Cases: Defense Motion To Dismiss Class

Action Improperly Granted As To Breach of Contract And UCL Claims Based On Federal RESPA Violations California Court Holds. Class Action Defense Blog. 2007. 4 June 2007 <http://classactiondefense.jmbm.com/2006/09/class_action_defense_casesmcke_1.html>.

[1] “McKell v. Washington Mutual-Class Action Defense Cases: Defense Motion To Dismiss Class Action Improperly Granted As To Breach of Contract And UCL Claims Based On Federal RESPA Violations California Court Holds,” Class Action Defense Blog, 2007, 4 June 2007 <http://classactiondefense.jmbm.com/2006/09/class_action_defense_casesmcke_1.html>.

[2] “McKell v. Washington Mutual: IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA, SECOND APPELLATE COURT, DIVISION ONE,” 2006, 4 June 2007, <http://classactiondefense.jmbm.com/mckellclassactiondefense_opn.pdf>.
[3] “McKell v. Washington Mutual-Class Action Defense Cases.”
[4] Ibid.

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Banking Industry in Bangladesh: Its Contribution and Performance

Journal of Business Research, vol. 3, 2001 This article is brought to you by www. bdresearch. org Banking Sector in Bangladesh: Its Contribution and Performance Sharif Rayhan Siddique* A F M Mafizul Islam** Abstract: The paper attempted to highlight the prospects and opportunities of banking sector in Bangladesh. Like other economic sector in the country, Banking is one of major sectors which contribute to the national economy. The study tried to furnish the overview of the performances of banking sector and also find out the comparison among the various categories of banks with respect to the Profitability.

Finally, the paper tried to establish the linear relationship among the various variables and net profit of the banking sector. 1. Introduction Banking sector of Bangladesh is one of the major sectors, which contributes significantly to the national economy. The sector comprises a number of banks in various categories. Considering ownership the sector can be classified in to four major categories – such as Nationalized Commercial Banks (NCBs), Specialized Banks (SPBs), Private Commercial Banks (PCBs), and Trans-National Banks (TNBs). The list of banks under different categories is furnished in the appendix – A.

The study has been initiated to analyze the contribution of this sector and its profitability. This paper attempts to provide an overview of the contribution of the sector in national economy. The paper also analyzes the profitability of different categories of banks. Finally a regression analysis has been done to examine the relationship between the profitability and other variables. 2. Contribution of the Banking sector in National Economy Economic development – of the country is executed by the contribution of various economic sectors. Like agriculture, industries, power, transport, rade service, etc. , banking sector also has a contribution to the economic growth. In mid 80s Banking and Insurance contributed 1. 69% of GDP and gradually the figure was increasing. The maximum contribution was 2. 09% of GDP in the year 1993 and it was 2. 00% in 1996-971 Average growth rate of this contribution was 1. 51% of GDP, which shows a positive trend. Again, the sector makes a positive impact on the economic development by generating employment. In the year 1980 total number of employees in this sector was 59,235 but with in 15 years of time the figure shoot approximately double to 101,444. The average growth rate of employment generation was 3. 76% (1980-1995). Countries like Bangladesh have a burden of its unemployment, where as banking sector still keep certain impact on employment generation. __________________________ * Assistant Professor, Institute of Business Administration, University of Dhaka. ** Associate Professor, Institute of Business Administration, University of Dhaka. 1 Calculated from the data collected from Economic Trend, December 1997. 2 Ibid. 2 Banking Sector in Bangladesh: Its Contribution and Performance Branches of the banks were also growing significantly.

Increasing branches indicate a wide service provider to the population of Bangladesh. Overall growth rate of the bank branches was 2. 11% (1980-1995). But before 1990 the rate was 3. 00% and after 1990 it was 0. 92%. In early 80s for the first time Government of Bangladesh (GOB) allowed private sector to operate commercial banks. At that time number of bank branches was growing rapidly. In the early 90s this growth rate was reduced, which may be because of the saturation stage. Individuals and business organizations used to deposit their savings in the bank and borrow money form it.

More the bank branches more people can be covered to avail them in banking services. Average population per branch was 19,875 during the period from 1984 to 1995. Because of the higher population growth rate (2. 22%),3 in spite of increasing branches, the population per branch was also increasing. Commercial banks are one of the profit making organizations, they are also making money by investing their deposits to the profitable venture through lending to the entrepreneurs. Commercial banks earn money from interest for loan and commissions and service charges for the services and it incurred expenditure as well.

Average profit per taka of expenditure was 0. 10. Before 1991 this figure was quite good, but after 1991 the ratio was negative up to 1993. Maximum figure was in the year 1982 that was 0. 23 and minimum was -0. 04 in the year 1991. Recently the ratio became 0. 07 in the year 1995. During 1991 to 1993 net profit was negative. i. e. commercial banks spent more than earning but again they improved the situation by reducing their expenditure compared to income. Banks’ income generated by the positive efforts of their employees.

Efficient employees can earn more which observed a positive impact to profit generation. Income per employee can be one of the indicators of commercial banks’ performance. Average income per employee from 1980 to 1995 was Tk. 227,046, i. e. per employees’ contribution to income was more than Tk. 2 lacs. The ratio was increasing significantly with the average growth rate of 12%, to Tk. 371,297 in the year 1995. A country leads itself to the economic development by investing and producing more in the local area. Investment can be ensured through increased savings rate.

Monetization ratio indicates a positive impact to the economic growth. This ratio is Broad Money to GDP. Average monetization ratio was 28% of GDP, and it was growing significantly from 17% in the year 1981 to 35% in the year 1995. 4 Commercial banks, as a whole, performing well and contributing to the economic development of the country. The average profitability of all banks collectively was 0. 09% during 1980 to 1995, which means profit Tk. 0. 09 earned by utilizing assets of Tk. 100. In every aspect of profit, banking sector contributes to national economy as well as to the individual organization.

Despite overall growth of the banking sector was positive, but the performances of different categories of banks were not equally attractive. Following section would compare analytically the performances of various categories of banks. _____________________________________________ 3 4 Calculated from the data collected from Statistical Yearbook, 1996. Ibid. Journal of Business Research, Vol. 3, 2001 3 3. Profitability of the Different Categories of Banks: A Comparative Analysis Main focus of this comparison on net profit earned by the banks.

Profit ratio, profit per taka of expenditure, profit per employee, profit per branch, profit per advance account, profit per taka of investment, profit per taka of deposit (savings), and per capita profit earned by the banks will be the variables for this analysis. Various groups of banks have different performances in terms of profit. Average measures were calculated for different categories of banks over the period from 1980 to 1995. 3. 1 Profit Ratio In case of profitability, i. e. amount of profit per Tk. 100 of asset. The ratio indicates the effective utilization of assets.

Performance of the organization can be expressed by this ratio. Average profitability ratios for the various categories of banks during 1980 to 1995 were exhibited in the table below: Table 1: Profit Ratio for Various Banks Banks Profit Ratio (%) NCBs 0. 08 SPBs -0. 32 PCBs 0. 13 TNBs 0. 71 Over all 0. 09 Source: Adopted from data in Appendix – B. The table indicated the performances in terms of utilization of assets in generating profit TNBs were the best. Specialized Banks had a very worst situation in utilizing of their assets, by showing negative average net profit.

Though as of 1990 net profits were increasing positively, but from 1991 to 1995 these net profit were gradually decreased to negative because of their declining income. On the other hand TNBs performance was excellent as compared to overall banks performance. Average growth rate of net profit for TNBs was 39%, which was extremely good. 3. 2 Profit per Taka of Expenditure Banks earned profit by incurring expenditure for their operations. Effective usage of financial resources led to a commendable profit situation. “How much profit earned by spending one taka” is the measure of efficiency of an organization.

Following table shows net profit per taka of expenditure for the different banks Table 2 : Profit per Taka of Expenditure for Various Banks Banks Profit per taka of expenditure (Tk. ) NCBs 0. 029 SPBs -0. 092 PCBs 0. 033 TNBs 0. 307 Overall 0. 10 Source: Adopted from data in Appendix – B. 4 Banking Sector in Bangladesh: Its Contribution and Performance Over all average profit was Tk. 0. 1 by incurring expenditure of Tk. 1. i. e. average return on expenditure was 10%. But in case of individual performance SPBs had negative average return on expenditure (-9. %), on the other hand TNBs performance (30. 7%) was above the industry average. Other than these two NCBs and PCBs both had vulnerable situation. 3. 3 Profit per Employee Effective utilization of human resources produces higher return. Earned more profit by few numbers of employee indicates commendable performance of the banks and human efficiency. Since the nature of the industry is service oriented, so human efficiency depends on intellectual abilities of the employees. Following table shows the comparison among various banks Table 3 : Profit per Employee for Various Banks

Banks Profit per employee (Tk. ) NCBs 4,538 SPBs -34,216 PCBs 9,659 TNBs 285,659 Over all 12,88 Source: Adopted from data in Appendix – B. Over all profit per employee was Tk. 12,880, i. e. each employee’s average contribution to the net profit was Tk. 12,880 in a year. TNBs as compared with overall, the figure was extremely good (Tk. 285,659). There are two indications for this picture, one is TNBs had highly efficient employees, and other is less number of employees. On the other hand except SPBs (which had negative figure), NCBs average profit per employee was Tk. ,538, which was far below from TNBs, even below from overall performance, which shows un-utilized human resources. 3. 4 Profit per Branch All categories of banks have numbers of branches covering wide range of the population of the country. To provide service to the wide range of people, banks have to establish multiple branches. Contribution to the total profit of different branches was varied, depending on the amount of deposits and advances. Table below expresses average profit contribution by the branches. Table 4 : Profit per Branch for Various Banks Banks Profit per branch (Tk. ) NCBs 6,205 SPBs -491,827 PCBs 181,548 TNBs 13,171,737 Over all 210,481 Source: Adopted from data in Appendix – B. 5 Banking Sector in Bangladesh: Its Contribution and Performance Considering all commercial banks in Bangladesh, these were earned on an average Tk. 0. 064 from investing one taka. The average Return on Investment (ROI) was not inadequate (6. 4%) as compared to any business. In case of TNBs this rate was very attractive (12. 7%), but except SPBs, both NCBs and PCBs had 1. 2% and 2. 5% respectively. 3. 7 Per Capita Profit Commercial banks are operating countrywide by offering services.

Accumulating funds and distributing them to entrepreneur was the main function of commercial banks. Wider area coverage makes the commercial bank more comfortable in terms of operation. Per capita profit earned by the commercial bank would indicate overall economic strength of banking system. Average profit gained per head can be expressed in the table below: Table 7 : Per Capita Profit for Various Banks Banks Per Capita Profit (Tk. ) NCBs 2. 53 SPBs -5. 25 PCBs 1. 46 TNBs 2. 51 Over all 10. 66 Source: Adopted from data in Appendix – B. Average profit per individual in the country for all banks was Tk. 0. 66, i. e. banking sector earns over Tk. 10 per head. But using same coverage for different categories of banks, the picture would be different. In case of NCBs operation they gained on an average Tk. 2. 53 per individual, where as TNBs earned Tk. 2. 51 per head. Apparently these two figures were same but considering the coverage in terms of number of branches, NCBs have 170 time more branches than TNBs. 3. 8 Overall Situation Considering all variables regarding profit, TNBs were doing extraordinarily good operation in this sector. Because of the policies and managements TNBs performance was better.

Keeping TNBs aside, PCBs performance comparatively better. As far as the ownership was concerned both NCBs and SPBs were same. PCBs started their operations in 1982, before the Government of Bangladesh controlled that total financial sector. But after allowing private sectors to operate commercial banks, PCBs were gradually capturing the market share. Surprisingly SPBs had negative performances in every aspect because of their negative net profit. 4. Relationship of Profit With Other Variables In the above section comparison of profitability among various groups of banks has been discussed.

But it was desired to know about the sensitivity of profit on various variables. Journal of Business Research, Vol. 3, 2001 6 Multiple regression analysis has been done to analyze the relationship between net profit as dependent variable and asset, expenditure, number of employees, number of branches, number of advance accounts, investment, time deposit are as independent variables. In this paper it was assumed that the relationship among the variables was linear, which is ? = A + B? + C? + D? + E? + F? + G? + H? ……………………………………………. i) where, ? is net profit ? is number of employees ? is amount of expenditure ? is number of branches ? is amount of investment ? is amount of asset ? is amount of time deposit ? is number of advance accounts A is constant The following section expressed the determination of coefficient of the independent variables, which indicate the degree of influences on net profit by corresponding variables. 4. 1 Regression Result Based on data provided in appendix – C, the values of coefficients and constant were calculated and also found the relationship among them.

Multiple linear regression equation is expressed in equation (ii). ? = – 68459+0. 002 ? -0. 186 ? +0. 159? -0. 084? +0. 003? +0. 133 ? -1. 03×10-6?……. (ii) Above linear equation shows that some of the independent variables have positive relationship and others have negative. Amount of expenditure, amount of investment and number of advance accounts all have negative relationship with net profit. On the other hand amount of asset, number of employees, number of branches and amount of time deposit have positive relationship with net profit.

Further, the strength of the relationship among the variables measured by the coefficient of determination (r2). The value was calculated as 0. 89, indicating very strong relationship. Therefore, the independent variables collectively may play important role on earning net profit in the banking sector as a whole. 4. 2 Scope to Improve of Profit In the equation (ii), it was evident that some of the independent variables have positive impact on net profit, though the degree of influences was very low. Net profit may increases by increasing values, which have positive relations.

From equation (ii), it was 7 Banking Sector in Bangladesh: Its Contribution and Performance clear that number of employee, number of branches, amount of asset and amount of time deposit have positive relations with net profit. From above relationship, it can be explained that if number of employee increased by one, the net profit will increase by Tk. 0. 002 crores, i. e. every 1,000 employees can contribute Tk. 2 crores to net profit. This indicated that there might be still opportunities to generate employment in this sector and can contribute to the national economy.

Again number of branches has also positive impact on net profit. Equation (ii) reflects that increase in one branch may increase net profit by the amount of Tk. 0. 159 crores, which also testifies that there was still scope to increase branches. In Bangladesh there were opportunities to establish branches in the rural areas where lots of business potentials were looking for the banking service. Another variable the amount of asset has positive relationship with net profit. Even it has very little influences on profit; every Tk. 1,000 crores of assets would increase net profit by the amount of Tk. 3 crores.

Therefore, it was apparent that there was still room to increase the amount of asset to earn more profit. Finally, the amount of time deposit was other variable, which has positive influences on net profit. Coefficient of this variable in equation (ii) was 0. 133, this indicated that every Tk. 1,000 crores increase in time deposit would increase profit by the amount of Tk. 133 crores. Analyzing above relationship, time deposit has stronger influences on net profit. Therefore, banking sector as a whole may increase their contribution to national economy if the amount of time deposit was increased.

Analyzing the regression equation it was clear that some of the independent variables have positive control over the generation of net profit, and also might increase the contribution of the banking sector to national economy by increasing the values of those variables. 5. Conclusion The performance of the banking sector in terms of net profit varies in various groups of bank. The study revealed that in every aspect, TNBs had a commendable performance. But comparing among other groups of banks (NCBs, SPBs, and PCBs), PCBs had preferred achievement aiming profit. On the other hand Specialized Banks in Bangladesh had a very poor performance.

This meager activity affected the overall banking sector’s performance. The comparison among various categories of banks has been done on the basis of the profit with respect to some other variables. The study also revealed the relationship among the dependent variable and independent variables. The equation (ii) shows the weights of the independent variables that influences net profit of the banking sector. Finally, the paper intended to identify the scopes and opportunities of the factors by which over all net profit might increase, and contribute to the national economy.

Journal of Business Research, Vol. 3, 2001 8 References 1. Mohammad Moqbul Hossain Bhuiyan. (1995). Managerial Effectiveness of Private Commercial Banks : A Comparative Study. Journal of Business Studies, Vol. XVI, No-1, June. 2. Sujit Ranjan Saha. (1996). Ancillary Business and Profitability of Banks : Trends and Prospects. Bank Parikrama. Vol. XXI, Nos – 1 & 2, March & June. 3. Taufic Ahmad Choudhury and others. (1994). Comparative Characteristics of Profit Earning and Loss Incurring Rural Bank Branches in Bangladesh. Bank Parikrama. Vol. XIX, Nos – 3 & 4, September & December. 4.

Abdul Ghafar Ismail. (1993). Deregulation and Bank Behaviour in Mixed markets. The Asian Economic Review. Vol. XXXV, No – 2, August. 5. Dipendra Sinha. (1996). Savings and Economic Growth in India. The Asian Economic Review. Vol. XXXVIII, No – 3, December. 6. Amar Chand Kaushik. (1996). Impact Study of Regional Rural Bank’s Credit on Income Generation an d Poverty Alleviation in Rural Haryana. The Asian Economic Review. Vol. XXXVIII, No – 1, April. 7. David Lynch. (1996). Measuring Financial Sector Development : A Study of Selected Asia-Pacific Countries. The Developing Economics. Vol.

XXXIV, No – 1, March. 8. Schiller, Bradley R. (1994). The Macro Economy Today. Sixth Edition. McGrawHill Inc. , New York, USA. 9. McConnell, Campbell R. and Brue, Stanley L. (1993). Macro Economics. Twelfth Edition. McGraw-Hill Inc. , New York, USA. 10. Fischer, Stanley. , Dornbusch, Rudiger. And other. (1988). Introduction to Macroeconomics. 2nd Edition. McGraw Hill, New York, USA. 11. Department of Statistics. (1997). Monthly Economic Trends. Bangladesh Bank. December. 12. Bangladesh Bureau of Statistics. (1997). Statistical Yearbook of Bangladesh 1996. Seventeenth Edition. November. 9

Banking Sector in Bangladesh: Its Contribution and Performance Appendix – A List of Banks: [a] Nationalized Commercial Banks (NCBs) Agrani Bank Janata Bank Sonali Bank Rupali Bank Ltd. [b] Specialized Banks (SPBs) Bangladesh Krishi Bank Bangladesh Shilpa Bank Rajshahi Krishi Unnayan Bank [c] Private Commercial Banks (PCBs) Arab Bangladesh Bank Ltd. Islami Bank Bangladesh Ltd. National Bank Ltd. The City Bank Ltd. IFIC Bank Ltd. United Commercial Bank Ltd. Pubali Bank Ltd. Uttara Bank Ltd. Al-Baraka Bank Bangladesh Ltd. BSIC Bangladesh Ltd. Eastern Bank Ltd. National Credit and Commerce Bank Ltd.

Prime Bank Ltd. Southeast Bank Ltd. Dhaka Bank Ltd. Al-Arafah Islami Bank Ltd. Social Investment Bank Ltd. Dutch-Bangla Bank Ltd. [d] TNBs Hanil Bank Hongkong Bank Society General Bank American Express Bank Ltd. ANZ Grindlays Bank Plc. S tandard Chartered Bank State Bank of India Habib Bank Ltd. Citi Bank N A Banque Indosuez National Bank of Pakistan Muslim Commercial Bank Ltd. J ournal of Business Research, Vol. 3, 2001 10 Appendix – B Various Data for PCBs Year 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Advance Assets Net Profit Expenditure Employees Branches

Accounts (cror (cror Tk. ) (cror Tk. ) (no. ) (no. ) (no. ) Tk. ) 82 2132 1877 8 173 11562 628 8429 5202 14 245 11813 653 283320 6381 16 281 12756 693 267393 7768 22 366 13552 715 178460 7208 25 438 14810 771 160220 9072 14 594 16107 824 160834 9514 2 682 16916 865 165290 11059 (11) 765 17486 902 169549 12445 (8) 886 18034 942 84913 15502 12 819 17826 943 90599 15783 16 865 18806 1000 102055 24190 72 907 19777 1047 117985 26794 Various Data for TNBs Net Advance Expenditure Employees Branches Year Profit Accounts (cror Tk. ) (no. ) (no. ) (cror Tk. ) (no. ) 1980 3 20 912 21 1882 1981 8 25 984 21 542 1982 11 32 999 21 2910 1983 12 45 1061 20 2888 1984 15 62 1042 20 3098 1985 18 77 1051 20 3610 1986 14 98 1064 22 3929 1987 22 119 1114 22 4144 1988 21 146 1124 22 4887 1989 7 147 1123 22 3971 1990 18 154 1135 22 3890 1991 25 99 789 18 2355 1992 38 65 826 18 2463 1993 54 92 826 18 3969 1994 68 106 888 19 6329 1995 90 146 926 23 9215 Investment (cror Tk. ) 76 293 346 327 396 506 554 787 750 653 879 1266 1439 Assets Investment (cror Tk. ) (cror Tk. ) 757 1280 1526 1476 1848 2281 2887 3245 4330 4697 4694 5575 4297 4377 5832 7111 51 70 109 118 156 163 177 196 300 279 358 340 228 203 260 266

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Comparison of Public and Private Banks

A “SUMMER TRAINING” PROJECT REPORT ON COMPARATIVE STUDY BETWEEN PRIVATE SECTOR BANKS ANP PUBLIC SECTOR BANKS Submitted To: PUNJAB TECHNICAL UNIVERSITY,JALANDHAR MASTER OF BUSINESS ADMINISTRATION(MBA) SESSION(2007-09) CT INSTITUTE OF ENGINEERING,MANAGEMENT & TECHNOLOGY,JALANDHAR (SHAHPUR CHAMPUS) PREFACE Someone has rightly said that practical experience is for better and closer to the real world then mere theoretical exposure.

The practical experience helps the students view the real world closely, which in turn widely influences their perceptions and argument their understanding of the real situation. Research work constitutes the backbone of any management education programme. A management student has to do research work quite frequently during his entire span. The research work entitle “COMPARATIVE STUDY BETWEEN PRIVATE SECTOR BANKS AND PUBLIC SECTOR BANKS” aims to analyze various services provided by private sector banks and public sector banks for this purpose Pathankot city have been chosen.

ACKNOWLEDGEMENT I feel immense pleasure to give the credit of my summer training project work not only to one individual effort of all those who concern with it. I want to thanks to all those individual who guided me to move on the track. The summer training project entitled “COMPARATIVE STUDY BETWEEN PRIVATE SECTOR AND PUBLIC SECTOR BANKS” I am gratefully indebted to Mr. Davinder Singh for providing me all the necessary help and required guideline for the completion of my project and also for the valuable time that he gave me from his scdedule. Neha Kapoor TABLE OF CONTENTS |CHAPTER NO. PARTICULARS |PAGE NO. | | 1 |INTRODUCTION OF THE STUDY | 1-23 | | 2 |OBJECTIVES OF THE STUDY | 24-25 | | 3 | 3. 1 RESEARCH METHODOLOGY | 26-36 | | | | | | |3. LIMITATIONS OF THE STUDY | | | | |37 | | 4 |DATA ANALYSIS AND ITS INTERPRETATION | 38-46 | | 5 |FINDING OF THE STUDY | 47-50 | | 6 |SUGGESTIONS 51-54 | | 7 |CONCLUSION | 55-56 | | 8 |BIBLIOGRAPHY | 57-58 | | 9 |ANNEXURE | 59-62 | Introduction The world of banking has assumed a new dimension at dawn of the 21st century with the advent of tech banking, thereby lending the industry a stamp of universality.

In general, banking may be classified as retail and corporate banking. Retail banking, which is designed to meet the requirement of individual customers and encourage their savings, includes payment of utility bills, consumer loans, credit cards, checking account and the like. Corporate banking, on the other hand, caters to the need of corporate customers like bills discounting, opening letters of credit, managing cash, etc. Metamorphic changes took place in the Indian financial system during the eighties and nineties consequent upon deregulation and liberalization of economic policies of the government.

India began shaping up its economy and earmarked ambitious plan for economic growth. Consequently, a sea change in money and capital markets took place. Application of marketing concept in the banking sector was introduced to enhance the customer satisfaction the policy of privatization of banking services aims at encouraging the competition in banking sector and introduction of financial services. Consequently, services such as Demat, Internet banking, Portfolio Management, Venture capital, etc, came into existence to cater to the needs of public.

An important agenda for every banker today is greater operational efficiency and customer satisfaction. The mew watchword for the bank is pretty ambitious: customer delight. The introduction to the marketing concept to banking sectors can be traced back to American Banking Association Conference of 1958. Banks marketing can be defined as the part of management activity, which seems to direct the flow of banking services profitability to the customers. The marketing concept basically requires that there should be thorough understanding of customer need and to learn about market it operates in.

Further the market is segmented so as to understand the requirement of the customer at a profit to the banks. DEFINITION OF BANK The Oxford dictionary defines the Bank as, “An establishment for the custody of money, which it pays out, on a customer’s order. ” According to Whitehead, “ A Bank is defined as an institution which collects surplus funds from the public, safeguards them, and makes them available to the true owner when required and also lends sums be their true owners to those who are in need of funds and can provide security. ” Banking Company in India has been defined in the Banking Companies act 1949, One which transacts the business of banking which means the accepting, for the purpose of lending or investment of the deposits of money from the public, repayable on demand, or otherwise and withdraw able be cheque, draft, order or otherwise. ” The banking system is an integral subsystem of the financial system. It represents an important channel of collecting small savings form the households and lending it to the corporate sector. The Indian banking system has Reserve Bank of India (RBI) as the apex body for all matters relating to the banking system. It is the central Bank of India.

It is also known as the Banker To All Other Banks. EVOLUTION OF INDIAN BANKING Ancient banking system of India constituted of indigenous bankers. They have been carrying on their age-old banking operations in different parts of the country under different names. The modern age of banking constitutes the fundamental basis of economic growth. The term Bank is being used since long time but there is no clear conception regarding its beginning. According to the viewpoint, in good old days. Italian money leaders were known as “Banchi” because they kept a special type of table to transact their business.

IMPORTANCE OF BANKS Today banks have become a part and parcel of Kotak Bank’s life. There was a time when dwellers of the city alone could enjoy their services. Now banks offer access to even a common man and their activities extend to areas hitherto untouched. Banks cater to the needs of agriculturalists, industrialists, traders and to all the other sections of the society. In modern age, the banking constitutes the fundamental basis of economic growth. Thus, they accelerate the economic growth of a country and steer the wheels of the economy towards its goals of “self reliance in all fields”.

It naturally arouses Kotak Bank’s interest in knowing more about the ‘Bank’ and the various men and the activities connected with it. Indian Banking System Banking in India has its origin as early as the Vedic period. It was believed that transition from money lending to banking must have occurred even before Manu, The great Hindu Jurist, who has devoted a section of his work to deposit advance and laid down rules relating to rates of interest. During the Mogul period, the indigeneousBankers played a very important role in lending money financing foreign trade and commerce.

During the days of East India Company, it was turn over the agency houses to carry on the business. “The General Bank of India” was the first to join sector in the year 1786. The others that followed were the Bank of Hindustan and the Bengal bank. The bank of Hindustan is reported to have continued till 1906 while the other two failed in the meantime. In the first half of the 19th century the East India Company established three banks: 1. Bank of Bengal (1809). 2. Bank of Bombay (1840). 3. Bank of Madras (1843. These three banks are also known as Presidency Banks were independent units and functioned well.

These three banks were amalgamated in 1920 and Imperial Bank of India was established on 27th january1921, which started as private shareholders banks, mostly Europeans shareholders, with the passing of time Imperial bank was taken over by the newly constituted State bank of India act in1955. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up.

Reserve Bank of India came in 1935. On July, 1969, 14 major banks of India were nationalized and on 15th April, 1980 six more commercial private banks were also taken over by the government. Reserve Bank of India The Banking system is an integral sub-system of the financial system. It represents an important channel of collecting small savings from the households and lending it to the corporate sector. The Indian banking system has The Reserve Bank of India (RBI) as the apex body from all matters relating to the banking system. It is the “Central Bank” of India and act as the banker to all other banks.

Functions of RBI: • Currency issuing authority • Banker to the government. • Banker to other Bank. • Framing of monetary policy. • Exchange control. • Custodian to foreign exchange and gold reserves. • Development activities. • Research and development in the banking sector. CLASSIFICATION OF BANKS On the basis of Ownership PUBLIC SECTOR BANKS Public sector banks are those banks that are owned by the government. The government owns these banks. In India 20 banks were nationalized in 1969 and 1980 respectively. Social welfare is there main objective. PRIVATE SECTOR BANKS

These banks are those banks that are owned and run by private sector. An individual has control over these banks in proportion to the shares of the banks held by him. CO-OPERATIVE BANKS These are those banks that are jointly run by a group of individuals. Each individual has an equal share in these banks. Its shareholders manage the affairs of the bank. According to the Law SCHEDULED BANK Schedule banks are the banks, which are included in the second schedule of the banking regulation act 1965. According to this schedule bank: 1. Must have paid-up capital and reserve of not less than Rs500, 000. . Must also satisfy the RBI that its affairs are not conducted in a manner Determinate to the interest of its depositors. Schedule banks are sub-divided as:- a) State co-operative banks b) Commercial banks NON-SCHEDULED BANKS Non -schedule banks are the banks, which are not included in the second schedule of the banking regulation act 1965. It means they do not satisfy the conditions lay down by that schedule. These are the banks having paid up capital, less than Rs. 5Lakhs. They are further classified as follows:- A. Central Co-operative banks and Primary Credit Societies.

B. Commercial banks According to Function COMMERCIAL BANKS These are the banks that do banking business to earn profit. These banks make loans for short to business and in the process create money. Credit creation is the main function of these banks. FOREIGN BANKS These are those banks that are incorporated by foreign company. They have set up their branches in India. These banks have their head offices in foreign countries. Their principle function is to make credit arrangement or the export and the import of the country and these banks deals in foreign exchange. INDUSTRIAL BANKS

Industrial banks are those banks that offer long term and medium term loan to the industries and also work for their development. These banks help industries in sale of their shares, debentures and bonds. They give loan to the industries for the purchase of land and machinery. AGRICULTURAL BANKS Agricultural banks are those banks that give credit to agricultural sector of the economy. SAVING BANKS The principle function of these banks is to collect small savings across the country and put them to the productive use. In India department of post office functions a savings banks. CENTRAL BANK

Central Bank is the apex bank of the banking system of the country. It issues currency notes and acts a banker’s bank. Economic stability is the principle function of this bank. In short, it regulates and controls the banking system of the country. RBI is the Central Bank of India. PRIVATIZATION OF INDIAN BANKING For the public sector banks, the era of bumper profit is over. For much of the last decade the process of collaborated financial liberalization had cleared up the Bank’s balance sheet enabling them to with stand increased competition, global financing, turmoil and even unprotected industrial slow down.

But the cycle of liberalization has run its full course. Now it is the time for the big structural leap, rationalization, mergers, and privatization. Unless the banks undertake these fundamental changes, their profit will stay under pressure. There are twp areas of competitions which banking industry is facing internationally and nationally. In the pre-liberalization era, Indian banks could grow in a closed economy but the banking sector opened up for private competition. It is possible that private banks could become dominant players even within India.

It has been recorded a rapid rise of the new private sector banks and it has tracked the transformation of the public sector banks as they grapple with the changes of financial deregulation. Use of ATM cards, Internet Banking, Phone Banking, Mobile Banking are the new innovative channels of banking which are being widely used as they result in saving both time and money which are two essential things that every one is short of and is running to catch hold of them. Moreover private sector banks are aligning its infrastructures, marketing quality and technology to build deep commitment in building consumer and retail banking.

The main focus of these banks is on innovative range of services or products. STRUCTURE OF BANKING SYSTEM Different countries of the world have different types of banking systems. However, commercial banking had grown under all these banking systems. To understand the structure of banking system, let us take up various types of banking systems one by one. These types are: (1) UNIT BANKING Unit Banking originated in the United State of America. It grew in the United States of America. As a counter part of independent or industrial units. An independent unit bank is a corporation that operates one office and that is not related to other banks through either ownership or control. Shaper, Solomon and White. Thus under unit banking, a single bank is a complete organization in itself having its own management. The scale of operation is small and the area is restricted to a locality only. Unit banking is localized banking and is much more responsive to the needs of the locality. It has better understanding of the local problems and conditions, which helps it to cater to the needs of the area in a better way.

The staff of the unit bank is generally local and is in a better position to determine the standing or desirability of the customers. The failure of the unit bank will not endanger the banking system and economy. It is free from the difficulties and diseconomies of large scale operations. It will not drain out the financial resources of villages and small towns to big industrial centers and will ensure a balanced growth. (2) BRANCH BANKING: Economic and Managerial problems faced by the unit banks let to the emergence of banking system. Now, This the most popular and important banking system.

In branch banking, a bank has a large network of branches scattered all over the country. Branch banking developed in England. Subsequently most of the countries of the world adopted the system. In terms of branches, the State Bank of India has emerged as one of the largest banks in the world. As under the system the resources of a number of branches get pooled under the same management, any individual branch is in a better position to face excessive withdrawals by the customers. It facilitates diversification of activities because the area covered by the branches is generally widespread.

Under the system branches can operate without keeping large idle cash reserves. It becomes possible for the bank to hire the services of competent and professionally qualified managers, capable of understanding the handling technical problems and complex situations. The cost of remitting or transferring funds from one place to another works out to be less. The staff stays at a branch only for a limited period, so the chances of objective decision making in the branch banking are high. Branch Banking tends to bring homogeneity in the prevailing Interest Rates as it increases the mobility of resources from one place to another.

It is easier for the Central Bank to exercise Control. It will communicate only with a few Registered /Head Offices of the Banks and not with each individual branch. In this system there more safety and liquidity of funds. The choice of securities and investments is larger. Branch banking makes complete banking services available to the smallest communities. The branches in small localities can be initially operated at loss in expectation of future gains. The comparative study of unit banking and branch banking is a case of small scale banking versus large scale banking. It is evident that the scale is clearly titled towards branch banking.

With the growth of large scale business it is no wonder that the trend is almost every country towards the branch banking i. e. big banks with a network of branches all over the country. Even in the U. S. A. The birthplace of unit banking. The Bank of America has now more than 500 branches in the state of California itself. (3) CHAIN BANKING : Shaper, Solomon and White have defined Chain Banking as “An arrangements by which two or more banks –each of which retains its identity, capital and personnel –are brought under common control by any device other than a Holding Company. ” Under the system there is pooling of resources.

Chain banking overcomes certain limitations of unit banking. But the system suffers from certain limitations of its own. There may be a lack of co-ordination, proper control etc. The system is inflexible. (4) GROUP BANKING : It is similar to Chain Banking, the difference being that under Group Banking two or more banks are brought under the control of the same management through a Holding Company. Both the systems aim at gaining the advantages of large scale operations. The banks are able to pool their resources in case of emergency or when large amount of cash is required to meet the loan requirements of the customer.

The advantages and disadvantages of both the systems are similar. Both the systems developed in the United State of America as a result of attempts to overcome the difficulties or limitations of unit banking. (5) CORRESPONDENT BANKING: Under Correspondent banking, small banks serving local communities hold deposits with joint banks serving in big cities. This kind of banking is prevalent in U. S. A. The correspondent banks perform two important services of outstation cheque clearing and loan participation for the respondent banks while they benefit for the deposit funds of respondent banks.

A) COMMERCIAL BANKS [pic] PRIMARY FUNCTIONS : 1) Accepting of Deposits : A bank accepts deposits from the public. People can deposit their cash balances in either of the following accounts to their convenience:- a. Fixed or Time Deposit Account : Cash is deposited in this account for a fixed period. The depositor gets receipts for the amount deposited. It is called Fixed Deposit Receipt. The receipt indicates the name of the depositor, amount of deposit, rate of interest and the period of deposit. This receipt is not transferable.

If the depositor stands in need of the amount before the expiry of fixed period, he can withdraw the same after paying the discount to the bank. b. Savings Account : This type of deposit suits to those who just want to keep their small savings in a bank and might need to withdraw them occasionally. Banks provide a certain rate of interest on the minimum balance kept by the depositor during the month. c. Current Account : This type of account is kept by the businessman who are required to withdraw money every new and then. Banks do not pay any interest on this account.

Any sum or any number of withdrawals can be presented by such an account holder. 2) Advancing of Loans : The bank advances money in any one of the following ways. a. Overdraft Facilities : Customers of good trading are allowed to overdraw from their current account. But they have to pay interest on extra amount they have withdrawn. Overdrafts are allowed to provide temporary accommodation since the extra amount withdrawn is payable within a short period. b. Money at Call : It is the money lent for a very short period varying from 1 to 14 days.

Such advances are usually made to other banks and financial institutions only. Money at call ensures liquidity. In the Interbank market it enables bank to make adjustment according to their liquidity requirements. c. Loans : Loans are granted by the banks on securities which can be easily disposed off in the market. When the bank has satisfied itself regarding the soundness of the party, a loan is advanced. d. Cash Credit : The Debtor is allowed to withdraw a certain amount on a given security. The debtor withdraws the amount within this limit, interest is charged by the bank on the amount actually withdrawn. . Discounting Bill of Exchange : It is another method of making advances by the banks. Under this method, bank give advance to their clients on the basis of their bills of exchange before the maturity of such bills. f. Investment in Government Securities : Purchasing of government securities by the banks tantamount to advancing loans by them to the Government. Banks prefer to buy government securities as these are considered to be the safest investment. For example : Indira Vikas Patra : It enables the banks to meet requirement of statutory liquidity ratio (SLR) ) Credit Creation :One of the main functions of banks these days is to create credit. Banks create credit by giving more loans than their cash reserves. Banks are able to create credit because the demand deposits i. e. a claim against the bank is accepted by the public in settlement of their debts. In this process the bank creates money. For this reason Prof. Sayers has called bank “the manufactures of money. ” 4) Cheque system of Payment of Funds A cheque, a negotiable instrument, which in fact is a bill of exchange, drawn upon a banker, is the most popular credit instrument used by the client to make payments.

Cheque system is the main credit instrument in the banking world. Although a cheque is not a legal tender money, the serves as a medium of exchange in a limited way as it is a negotiable instrument. Because of “clearing houses” and “clearing” operations of the banks, cheques can be and are used for transferring funds from one centre to another. In the modern days they can also be used for transferring funds from one country to another. SECONDARY FUNCTIONS Besides the above primary functions, banks also perform may secondary functions such as agency functions, general utility and social functions.

A) Agency Functions Banks act as agents to their customers in different ways :- i) Collection and Payment of Credit and Other Instruments: The Commercial banks collect and pay cheques, bills of exchange, promissory notes, hundies, rent, interest etc. On behalf of their customers and also make payments of income tax, fees, insurance premium etc. on behalf of the customers. Customers can leave standing instructions with the banker for various periodic payments ensuring the regular payments and avoiding the trouble of performing it themselves. ii) Purchase and Sale of Securities : The modern ommercial banks also undertake the purchase and sale of various securities like shares, stocks, bonds units and debentures etc. On behalf of the customers, banks do not give any advice regarding the suitability or otherwise of a security but simply perform the functions of a broker. iii) Trustee and Executor : Banks also acts as trustees and executors of the property of their customers on their advice. Sometimes banks also undertake income tax services on behalf of the customers. iv) Remittance of Funds : The Commercial banks remit funds on behalf of clients from one place to another through cheques, drafts, mail transfers etc. ) Representation and Correspondence : Sometimes commercial banks acts as representatives or correspondents of the clients especially in handling various applications. For instance, passports and travel tickets, booking of vehicles, plots etc. vi) Billion Trading : In many countries, the commercial banks trade is billions like gold and silver. In Oct 1997, 8 banks including SBI, IOB, Canara Bank and Allahabad Bank have been allowed import of gold which has been put under open general licensed category. vii) Purchase and Sale of Foreign Exchange : Banks buy and sell foreign exchange, promoting international trade.

This function is mainly discharged by foreign Exchange Banks. viii) Letter of References : Banks also give information about economic position of their customers to domestic and foreign traders and vice versa. B) GENERAL UTILITY SERVICES In addition to agency services, banks render many more utility services to the public. These services are :- i) Locker Facilities : Banks provide locker facilities to their customers. People can keep their valuables or important documents in these lockers. Their annual rent is very nominal. ii) Acting as a referee : It desired by the customers, the bank can be a referee i. . who could be referred by the third parties for seeking information regarding the financial position of the customers. The bank will acts as referee only and only if it is desired by the customer, otherwise the secrecy of a customers is account is maintained very carefully. iii) Issuing letters of credit : Bankers in a way by issuing letters of credit certify the credit worthiness of the customers. Letters of credit are very popular in foreign trade. iv) Acting as Underwriters : Banks also underwrite the securities issued by the Government and Corporate bodies for a commission.

The name of bank as an underwriter encouraged investors to have faith in the security. v) Acting as information banks : Commercial banks also acts as “information” bureau as they collect the financial, economic and statistical data relating to industry, trade and commerce. HDFC Bank is providing information relating to NRI Schemes and commentaries of experts on development in the areas of finance through Internet. vi) Issuing Traveler’s cheques and credit cards : Banks have been rendering great service by issuing traveler’s cheques, which enable a person to travel without fear of theft or loss of money.

Now, some banks have started credit card system under which a credit card holder is allowed to avail credit from the listed outlets without any additional cost or effort. Thus, credit card holder need not carry or handle cash all the time. Now, international credit cards are joining hands with Indian Banks. vii) Issuing of gift cheques: Certain banks issue gift cheques of various denominations, e. g. Some Indian banks issue gift cheques f the denominations of Rs. 21, 31, 51 and 101 etc. They are generally issued free of charge. viii) Dealing in Foreign Exchange: Major branches of commercial banks also transact business of foreign exchange.

Commercial banks are the main authorized dealers of foreign exchange in India. ix) Merchant banking Services: Commercial banks also render merchant banking services to the customers. They help in availing loans from non-banking financial institutions. x) Help in Transportation of Goods: Big businessmen or industrialists after consigning goods to their retailers send the Railway Receipt (Consignment Note) to the bank. List of Public Sector Banks o State Bank of Bikaner & Jaipur o State Bank of Hyderabad o State Bank of Indore o State Bank of Mysore o State Bank of Saurastra State Bank of Travancore Other Nationalised banks are: • Allahabad Bank • Andhra Bank • Bank of Baroda • Bank of India • Bank of Maharastra • Canara Bank • Central Bank of India • Corporation Bank • Dena Bank • Indian Bank • Indian Overseas Bank • Oriental Bank of Commerce • Punjab & Sind Bank • Punjab National Bank • Syndicate Bank • UCO Bank • Union Bank of India • United Bank of India • Vijaya Bank List of Private Sector Bank • Bank of Punjab • Bank of Rajasthan • Catholic Syrian Bank • Centurion Bank • City Union Bank • Dhanalakshmi Bank • Development Credit Bank • Federal Bank • HDFC Bank ICICI Bank • IDBI Bank • IndusInd Bank • ING Vysya Bank • Jammu & Kashmir Bank • Karnataka Bank • Karur Vysya Bank • Laxmi Vilas Bank • South Indian Bank • United Western Bank • UTI Bank List of Foreign Banks in India • ABN-AMRO Bank • Abu Dhabi Commercial Bank • Bank of Ceylon • BNP Paribas Bank • Citi Bank • China Trust Commercial Bank • Deutsche Bank • HSBC • JPMorgan Chase Bank • Standard Chartered Bank • Scotia Bank • Taib Bank Upcoming Foreign Banks In India [pic] |[pic] | By 2009 few more names is going to be added in the list of foreign banks in India.

This is as an aftermath of the sudden interest shown by Reserve Bank of India paving roadmap for foreign banks in India greater freedom in India. Among them is the world’s best private bank by Euro Money magazine, Switzerland’s UBS. The following are the list of foreign banks going to set up business in India • Royal Bank of Scotland • Switzerland’s UBS • US-based GE Capital • Credit Suisse Group • Industrial and Commercial Bank of China Merrill Lynch is having a joint venture in Indian investment banking space — DSP Merrill Lynch. Goldman Sachs holds stakes in Kotak Mahindra arms.

GE Capital is also having a wide presence in consumer finance through GE Capital India. India’s GDP is seen growing at a robust pace of around 7% over the next few years, throwing up opportunities for the banking sector to profit from. The credit of banks has risen by over 25% in 2004-05 and the growth momentum is expected to continue over the next four to five years. Participation in the growth curve of the Indian economy in the next four years will provide foreign banks a launch pad for greater business expansion when they get more freedom after April 2009. Objectives of the Study

This study has been conducted with a variety of important objectives in mind. The following provides us with the chief objectives that have tried to achieve through the study. The extent to which these objectives have been met could judged from the conclusions and suggestions, which appear in the later of this study. The Chief Objectives of this study are: 1. To find the bank sector that is largely availed by the customer. 2. To study the factors the factors influencing the choice of a bank for 3. availing services. 4. To find and compare the satisfaction level of customers in public sector 5. s well as in private sectors bank. 6. To study the problem faced by customer. 7. To get suggestions for improvement or change in the services of public and private sector banks. 8. To study what do people expect in the new era of banking. RESEARCH METHODOLOGY Research is an art of scientific investigation. In other word research is a scientific and systematic search for pertinent information on a specific topic. The logic behind taking research methodology into consideration is that one can have knowledge about the method and procedure adopted for achievement of objectives of the project.

With the adoption of this others can evaluate the results also. Its main aim is to keep the researchers on the right track. The methodology adopted for studying the objectives was surveying the saving account holders of District Jalandhar. So keeping in view the nature of requirements of the study to collect all the relevant information regarding the comparison of saving account of Centurion Bank of Punjab with other banks, direct personal interview method with structured questionnaire was adopted for the collection of primary data. Secondary data has been collected through the various magazines and newspapers and by surfing on Internet.

And the guide in the organization was consulted at many times. SAMPLE DESIGN:-A sample design is a definite plan for obtaining a sample from a given population. It refers to the techniques or the procedure the researcher would adopt in selecting items for the sample. Sample design may as well lay down the number of items to be included in the sample i. e. , the size of the sample. Sample design is determined before data are collected. Here we select the population as sample in our sample design. The selected respondents should be as representatives of the total population.

POPULATION:- The persons holding saving account related to business class of District Jalandhar were taken into consideration. DATA COLLECTION Data was collected by using main two methods i. e primary data and secondary data. PRIMARY DATA Primary data is the data which is used or collected for first time and it is not used by anyone in the past. There are number of sources of primary data from which the information can be collected. We choose the following resources for our research. QUESTIONNAIRE:-This method of data collection is quite popular, particular in case of big enquiries.

Here in our research we set 15 simple questions and request the respondents to answer these questions with correct information. RESPONDENTS:-Respondents helps in creation of more accurate idea about our research. We personally meet the respondents inside and outside the banks. SECONDARY DATA Secondary data is the data which is available in readymade form and which is already used by people for some purposes. There may be various sources of secondary data such as-newspapers, magazines, journals, books, reports, documents and other published information.

BANKS ANNUAL REPORTS:-Banks issues there annual reports to get the people informed with the profitability and growth of the bank. These annual reports helps us a lot to get the latest data and other related information for our research. It tells us about the increase or decrease in profits and other facilities. JOURNALS AND PUBLICATIONS OF DIFFERENT BANKS :- We also take into consideration the journals and publications issued by the bank at different times. we comes to know about the Branches, ATM, locations and other useful information.

MANUALS AND BROACHERS OF DIFFERENT BANKS:-We take the help of bank staff and other people who gives us deep information and data which may not be available at anywhere. They gives us there full co-operation. INTERNET:-We also take into consideration the internet facility with which we collect lot of latest information. SAMPLE PLAN : ? SAMPLE SIZE: Keeping in mind all the constraints the size of the sample of the study was selected as 80. ? SAMPLING UNIT:- Centurion Bank of Punjab Branch in Jalandhar city. Due to nature of study, we also visited various different banks ICICI, HDFC, SBI, PUNJAB NATIONAL BANK etc. f Jalandhar District. ? SAMPLING TECHNIQUE:- Stratified convenient sampling. All the saving account holders were taken into consideration. Research was conducted on clear assumptions that the respondents would give frank and fair answers in a pragmatic way and without any bias. ? SAMPLING DESCRIPTION:- In order to understand the nature and characteristics of various respondents in this study, the information was collected and analyzed according to their socio economic background which included the characteristic of their respondents like education, age marital status and monthly income.

This description shows that respondents included in this survey belong to different backgrounds and this turn increase the scope of the study. PERSONAL DETAIL AGE |Particulars |%age of Respondent | |20-30 years |20% | |30-40 years |50% | |40-50 years 20% | |50-60 years |10% | [pic] Analysis & Interpretation: From the above study we find that nobody is below 20 age and 20% respondents are between 20-30 age group, 50% respondents are between 30-40 age group, 20% respondents is between 40-50 age group and 10% respondents are between 50-60 age group. SEX Particulars |No of Respondent |%age | |Male |70 |70% | |Female |30 |30% | |Total |100 |100% |

Analysis: From the above result we come to know that out of 100, 62 respondents are male and 38 are female which is 62% and 38% are respectively. Interpretation: From the above data we conclude that most of our respondents are male. MARITAL STATUS Particulars |No of Respondent |%age | |Married |33 |33% | |Unmarried |67 |67% | |Total |100 100% | [pic] Analysis: From the above study we find that out of 100%, 33% respondents are married and 67% respondents are unmarried. Interpretation: Most of the respondents of our survey are Unmarried. Q4: HIGHEST EDUCATIONAL QUALIFICATION:- Particulars |No of Respondent |% age | |Matric |4 |4% | |Senior Secondary |14 |14% | |Graduate |46 |46% | |Post graduate | 36 |36% | | Total |100 |100% | [pic] Analysis: This analysis shows that out of 100 respondent, 46% respondents are graduate & professional, 36% respondents are post graduate, 14% respondents are senior secondary and 2% respondents are of Matric category. All the respondents of our survey are qualified. Interpretation: From the above data we conclude that most of our respondents are Graduates & professional degree holders.

OCCUPATION |Particulars |No of Respondent |%age of respondents | |Businessman | 32 |32% | | Government Employee | 28 |28% | | Student | 24 |24% | | Others |16 |16% |

Analysis: From the above analysis it is clear that 32% respondents are doing their own business, 28% are employees and 16% respondents belong to other category And 24% of our respondents are students. Most of the respondents of our survey are Businessmen. Interpretation: From the Above data we conclude that most of our survey respondents are businessmen. DATA COLLECTION: Data was collected using two main methods: COLLECTION OF DATA LIMITATIONS OF THE STUDY Due to constraints of time and resources, the study is likely to suffer from certain limitations. Some of these are mentioned here under so that the findings of the study may be understood in a proper perspective. The limitations of the study are: Some of the respondents of the survey were unwilling to share information. ? The research was carried out in a short period of 6 weeks . Therefore the sample size and other parameters were selected accordingly so as to finish the work within the given time frame. ? The information given by the respondents might be biased because some of them might not be interested to give correct information. ? The officials of the bank supported me a lot, but did not have sufficient time to make the points more clear. Analysis of Data collected 1. The respondents were asked about which banking sector’s services do their avail. Table1: banking sector’s services which the respondents avail. Banking sector |Number of respondents | |Public |32 | |Private |38 | |Both |30 | Graph 1: Banking Sector’s services which the respondents avails INTERTRETATION:-It was found that most of the respondents were availing services of private sectors banks while those of the public sector banks were less as compare to public sector 2. The respondents were Asked about the type of account they have in the public sector as well as Private sector banks Table 2. 1 Number of type of account held in Public sectors banks Type of Accounts Name of Account |Savings |Current |Demat |Fixed deposits |Salary | |Total no of respondents |50 |15 |6 |15 |14 | [pic] Graph 2. 1 :- Number of type of accounts held in Public sector banks Analysis: 50% people own Saving Account, 15% own Current account, 6% demat,15% fixed deposits account and 14% salary Account Interpretation: It was found that in case of public sector banks, maximum number of account holders owns Saving Account. After Saving account most prefer account is salary account prefer by people and the next priority goes to fixed deposits Accounts. 3. The basic purpose of this question was to know the most preferred bank. Table 3. Number of respondents preferring different banks Names of Banks |Number of respondents | |ICICI Bank |24 | |HDFC Bank |22 | |State Bank Group |20 | |Punjab National Bank |28 | |Punjab And Sind Bank |6 | Analysis: From above graph, it is seen that 28% stake of the respondents follows to Punjab National bank followed byICICI bank. It is the bank which provide 12-hour banking. also the ATM machine is more as compared to the other private sector banks. Interpretation : From the above graph, it is seen that Punjab national is the most preferred bank as compared to other Public and Private sector Banks. The reason for preference of public sector bank is the minimum amount of deposit for saving account. 4. The aim to ask this question was to know he reasons for their preference in different banks :- Table 4:- Reason for account in different banks Reasons |No of respondents | |Friendly Behaviour of the Staff |16 | |Reliability/trust |14 | |Quick and fast services |55 | |Location |15 | Graph 4:-Reasons for account in different banks Inpretation: By analyzing this graph, we can conclude that most of the people is influenced by the quick and speedy services provided by the bank and location is given less preference than others. 5. The respondents were asked about the facilities they were availing in public as well as private sector banks :- Table 5. Number of people availing different facilities at public sector banks: |Facilities Availed |No of respondents | |ATM/Debit card |60 | |Demat |5 | |Internet/Mobile/Phone Banking |15 | |Insurance |20 | [pic]

Graph 5. 1: Number of people availing different facilities at public sector banks Interpretation: From the above graph, it was found that was availed by most of the people at public sector banks was that of ATM/Debit cards which hold 90% of respondents. It is clearly observed by the graph that Insurance are neck to neck holding 20% of respondent each. 6. The purpose of this question is to know the satisfaction level they were having with their banks overall performance:- Public sector banks Table 6. 1 Satisfaction level of the customers regarding the facilities availed from the public sector banks |Level of Satisfaction |No. f respondents |%age | |Excellent |12 |24% | |Good |21 |42% | |Very Good |27 |54% | Graph 6. 1 Satisfaction level of Customers regarding the facilities availed from the public sector banks. Analysis: It was found that in case of public sectors banks, 18% of the respondents were highly satisfied ranked excellent from the products and services availed by them. 44% were just satisfied given very good and 38% have moderate view. Interpretation: People have mixed type of view regarding public sector banks. 7.

The respondents were asked that if they have given option, would they like to shift from the present banks:- Table 7 Number of customers ready to shift from present bank. [pic] Graph 7:- Number of customers ready to shift from their present bank or not. Interpretation: From this above Graph, we can conclude that the number of respondents ready to shift from their present bank is 28% while 70% customers seems to be satisfied from their bank and hence willing to shift from their present bank to other. 8. The aim to ask this question was to know whether the respondents faces any problem regarding the services provided them by their preferred bank :- Table 8 Problem faced by customers. Types of problem |No of respondents | |Time consuming |10 | |Introduction |8 | |Reference |15 | |Too many formalities |6 | |No facility of photograph instantly |4 | |No problem |6 | [pic] Interpretation: It was found that most of the respondents are facing problem of reference. Respondents also find that the time and too much formalities also cause problem in banks. FINDINGS OF THE STUDY More number of people have account with private banks. ? Majority of the respondents whether in public sectors or in private sector banks have savings account with banks. ? Number of problem faced by the people is more in public sector banks. ? People want a change in the behavior of the staff of the public sector banks. ? People are more satisfied form the private sector banks due to their better services provided by them in terms of speedy transactions, fully computerized facilities, more working hours (in case of ICICI bank, the number of working hour are 12), good investment Advisory services, efficient and co-operative staff, better approach to Customer Relationship Management. In private sector banks proper promotional activities should be taken up so as to make the population aware of the services provided by the banks even in rural areas. ? The facility that was availed by most of the people at public sector banks was that of ATM/Debit cards. The least availed facility was that of Demat account and foreign transfer of funds. ? The facility that was availed by most of the people at private sector banks was that of Internet/Phone banking by ATM/Debit card. ? Majority of respondents do not want to shift from their present bank. ? From the above study it is clear that private banks are providing better services than nationalized banks. 5% respondents favored that private banks are providing better services than nationalized banks while 5% respondents are not agree with it. ? From the above study it is clear that majority of the respondents said that the average balance requirement for operating their saving account is between 5000-10000. 20% said it is between 10000-20000 and remaining 5% said it is between 20000-50000 in private sector banks which as compared to Public sector bank is very high. ? 40% respondents said that the bank employees never pay any attention to them and 10% respondents said that their problems are not solved by bank executives. The remaining 50% respondents give a positive reaction in the favour of bank. 0% respondents favoured that their problems are solved by bank executives and 20% respondents said they are received with smile by bank executives. So there is a mix response. ? Majority of the respondents said that the average time taken for transactions is between 25 to 50 minutes in their bank. 30% respondents said the average time taken for transaction is between 20-25 minutes, 20% said it is between 10 to 25 min. and remaining 10% said that the average time taken for transaction by their bank is 5 to 10 minutes. ? From the above study is clear that the banks do not organize any customer meets. All the 100% respondents said that their bank does not organize any customer’s meets to resolve their problems.

Customer satisfaction is the demand of time, so the banks should organize customer meets to resolve the problems of their customers. ? From the above study it is clear that majority of the respondents are ready to pay nominal charges for better services provided by private banks while 40% respondents are not ready to pay any nominal charges. ? The above study depicts that 60% respondent said that their bank updates them time to time about the latest facilities and remaining 40% said that their bank doesn’t update them. [pic] SUGGESTIONS Based on the study conducted, There are some of the suggestions given by the customers of how the modern banking should be.

These are the comment given by them about the improvement of the banking sector in India. ? Banks should obey the RBI norms and provide facilitiesas per the norms, which are not being followed by the banks. While the customer must be given prompt services and the bank officer should not have any fear on mind to provide the facilities as per RBI norms to the units going sick. ? Banks should increase the rate of saving account ? Banks should provide loan at the lower interest rate and education loans should be given with ease without much documentation. All the banks must provide loans against shares. ? Fair dealing with the customers. More contribution from the employee of the bank.

The staff Should be co-operative, friendly and must be capable of understanding the problems of customers ? Internet banking facility must be made available in all the banks. ? Prompt dealing with permanent customers and speedy transaction without harassing the customers ? Each section of every bank should be computerized even in rural areas also. ? Real time gross settlement can play a very important role. ? More ATM coverage should be provided for the convenience of the customers. ? No limit on cash withdrawls on ATM cards. ? The bank should bring out new schemes at time-to-time so that more people can be attracted. Even some gifts and prizes may be offered to the customers for their retention. 24 hours banking should be induced so as to facilitate the customers who may not have a free time in the daytime. It will help in facing the competition more effectively. ? The charges for saving account opening are high, so they should also be reduced. ? Customers generally complain that full knowledge is not granted to them. Thus the bank should properly disclose the features of the product and services to the customers. Moreover door to door services can also be introduced by bank. ? The need of the customer should properly be understood so that customer feels satisfied. The relationship value should be maintained. ? The branch should promote cooperation and coordination among employees which help them in efficient working. Maintenance of proper hierarchy should be done. A good hierarchy set up can ensure better results with in the bank. Banking sector is improving by leaps but still it needs to be improved. Proper and efficient relationship staffs having knowledge for one stop banking, customer friendly atmosphere, and better rate of interest are need of the hour. the concept of privatization has overall improved the services in all the banks. Home banking will be order of the day. Recommendations For Public Sector Banks: • Bank staff should be customer friendly and highly motivated to serve the normal customer. • As far as possible, banks should reduce its documentation process while providing loans. Computerization should be done in banks at all level and the operators should de properly trained. • Token system should be induced so as to minimize the waiting lines in the banks. • Proper ambience in the banks can develop a healthy working culture. • Quick services should be provided. For Private sector Banks • 24 hours banking should be induced so as to facilitate the customers who may not have free time in the day time. It will help in facing the competition more effectively. • More ATM coverage should be provided for the convenience of the customers. • Customer care services should be provided by banks. CONCLUSION

The customers now days are not only exposed of what type of service is being provided by banks in India but in the world as a whole. They expect much more than what is actually being provided. So the new coming banking sector has to provide and cater to all the needs of the customers otherwise it is difficult to survive in the competition coming up. They not only expect the safety of money but also best ways to invest that money which need needs to be fulfilled. Banks need to have a better outlook towards to actually what customers are requiring. Entries of the private sector banks have made the competition tougher. If a bank is not functioning properly it is being closed. So it is difficult to face these types of conditions.

Here a simple philosophy can work that customers are God and we need to follow this to survive and serve better. The banking sector is poised for explosive growth. In this, scenario, it is imperative that banks adopt technology at an aggressive Pace, if they wish to remain competitive. Mani Mamallan makes a case for banks to outsource their technology infrastructure requirement, thus enabling early adoption and increased efficiencies. In the prevailing scenario, a number of banks have adopt a new deployment strategy of infrastructure outsourcing, to lower the cost of service channels. As a result, other banks too will need to align their reinvented business models. The required changes at both the business and technology levels are enormous.

In a highly competitive banking markets, early adopters are profiting from increased efficiencies. BIBLIOGRAPHY BOOKS: ? Kothari C. R. (1990) Research Methodology: Method and Techniques; Wishva Prakashan, New Delhi. ? Bodie. Z, Kane. A & Mracus. J : Essentials of Investments. ? Prof. E Gordon & Dr. K. Natrajan “Banking Theory Law and Practice”. ? “Indian financial System & Commercial Banking” by Khan Masood Ahmed ? “Banking in India” by P. N. Varshney WEBSITES: ? www. centurionbop. co. in ? www. pnbindia. com ? www. statebankofindia. com ? www. icicibank. com ? www. rbi. org. in ? www. iba. org. in ? www. knowledgestom. com ? www. igniter. com BROACHERS & PAMPHLETS Broachers and pamphlets of Saving A/c QUESTIONNAIRE “Comparative Study on public and private sector banks” Dear customer, We are the students of C. T. I. E. M. T. Shahpur, Jalandhar. We are undergoing the project entitled named “Comparative Study on public and Private sector banks” So by filling this questionnaire please helps us in completing our project. Q1. Which Sector bank do you have your account? Public (Private( Both ( Q2. In which bank do you have your Account? 1. 2. 3. 4. Q3. Which type of account do you have in the bank? Saving ( Current ( Demat ( F. D ( Salary (

Q4 In Case you have yours Account in more than one a Bank which one is your most preferred bank (Give only one bank) Q5. Rank the selection criteria for opening account with bank? Brand Image (Services ( Location ( Charges ( Q6. Kindly rank the reasons for yours preference in this particular bank? Quick and fast services (Location ( Friendly Behavior ( Reliability ( Q7. Which facilities are you availing at your bank? Atm/Debit card ( Credit card ( Insurance ( Mobile Banking ( Q8. How often do you use debit card to shop? Occasionally(Never( Q9. How much Satisfied are you with your bank’s overall performance ? Excellent(Very Good(

Good ( Q10. Any Specific services you expect from your bank ? Q11. If an option is given to you, would you like to shift from the present Bank? Yes ( No ( Q12. Do you face any problem regarding the services provided by your preferred bank? If Yes Q13. Would you like to give any suggestions for the better functioning of banks in these sectors? Public Sector Private sector 16. Any other suggestions please specify ? ____________________________________________________________ ____________________________________________________________ Thanks for your valuable time given to us .

We assure you that the information provided by you will remain confidential. Thanks for your co-operation. PERSONAL DETAILS. NAME-……………………………………………………………………… AGE-………………………………………………………………………… GENDER-………………………………………………………………….. EDUCATION-……………………………………………………………… ADDRESS-…………………………………………………………………. ………………………………………………………………………………. PHONE NO. -……………………………