Aspects of banking productive efficiency and performance

Abstract

The fast pace of globalisation in the international financial market arena, has opened new markets and led to a more sophisticated financial environment. The liberalised market economy led by the freedom of capital flows has put down all boundaries in the financial markets. To survive banks must be able to react quickly and positively to the changing market conditions and enhance the competitive position within the market place. Faced by this new realism, the banking firm had to find strategic ways in ensuring that changes within the globalised economy will be implemented smoothly for its operations. Customer sophistication is one of the phenomena the banking industry had to adapt to. Today sophisticated customers expect services like internet banking and telephone banking to get their transactions done in the fastest and convenient way. The creation of these standards today shape and hardwire productive efficiency in the banking market. Banks have no choice but to provide these services as a defensive strategy even though providing them does not necessarily mean that the bank is being more cost efficient. The importance of cost reduction and high levels of performance has wrought the operating environment of the banking firm. Due to changes in the economic environment, banks have faced and will continue to face increased pressure on profitability. To counter act this effect banks are increasingly considering mergers and takeovers, to achieve economies of scale that is necessary to compete in the market place. Most mergers are driven by costs savings, technology and the need to spread new investment across a larger customer base. This leads banks to attain proficiency in identifying ways to improve revenues or re-focus costs to ensure better performance.