NIB Bank

The Bank was incorporated in Pakistan and listed on all the three stock exchanges of Pakistan and has 178 branches. The Bank is a scheduled commercial bank and is principally engaged in the business of banking as defined in the Banking Companies Ordinance, 1962. The bank is a subsidiary of Bugis Investment (Mauritius) Pte Limited which is a wholly own subsidiary of Fullerton Financial Holdings Pte Limited which in turn is a wholly owned subsidiary of Temasek Holdings, an investment arm of the Government of Singapore.

Effectiveness, Efficiency, Responsiveness and Innovativeness analysis Measure bank Efficiency:

Drucker (1977) distinguished efficiency and effectiveness by associating efficiency to doing things right and effectiveness to doing the right things. In his terminology, a measure of efficiency assesses the ability of an organization to attain the output(s) with the minimum level of inputs. Kumar and Gulati (2009) appraise the efficiency, effectiveness, and performance of public sector banks operating in India by using a two-stage performance evaluation model efficiency and effectiveness. I have used the same methodology to measure the efficiency of NIB bank and its major competitors. Kumar and Gulati (2009) used the following variables as the output. 1. Advances 2. Other Earning assets Inputs used for computing efficiency scores are: 1. Total customer deposits and borrowings 2. Total number of employees 3. Total Fixed assets The financial data for the study was mined from the banks financial statements existing on state bank of Pakistan website. The study also provides the comparative analysis with major competitors of banking industry in Pakistan. The competitors have been selected on the basis of higher market price. Market price for the shares of MCB and HBL is Rs.177 and 112 respectively.

Bank Input

No of Employees
Deposits Borrowings Total fixed assets Total Inputs

NIB bank 2,671

85,488,268 47,382,031

MCB 13,380 491,188,710 39,100,627 22,007,903 593,419,226

HBL
13,661 875,308,597 33,714,904 17,107,263

2,693,795 154,768,022

995,562,649

Bank Output Customer loans Other Earning assets Total Output

NIB Bank 60,844,380 65,752,578 126,596,958

MCB 225,801,259 319,887,963 545,689,222

HBL
416,261,389

476,506,307 892,767,696

Bank Efficiency Scores

Bank Efficiency Scores NIB Bank 93.38% MCB 98.80% HBL 96.40%

Analysis and Recommendations:

The bank efficiency score tells how well a bank uses its inputs i.e. customer deposits, borrowings, its human resource and fixed assets to generate earnings assets of the bank. After calculating the efficiency ratio NIB bank is not enough efficient in utilizing its resources as compared to its competitors. By analyzing all the inputs and outputs and their Efficiency scores some recommendations are given under: NIB bank needs to efficiently utilize all of its input. The reason for the inefficiency that the NIB bank is not offering enough loans to its customers because of low deposits. The reason for the low deposits is poor branch distribution. In Islamabad there are total 11 branches of NIB bank. Whereas MCB has 22 branches i and HBL have 42. There are total 35 branches of NIB bank in Lahore while MCB and HBL have 80 and 105 respectively. In Karachi total 55 branches are working while HBL and MCB have 92and respectively. There are overall about 200 branches in Pakistan which is minor figure as compared to competitors. Another reason for low deposit is the poor advertisement. NIB bank needs to advertise heavily to attract the customers. We hardly see an ad of NIB bank on T.V and print media. Lack of advertisement has created the unawareness among the people regarding the bank and people are depositing their amounts to the competitors.

PUBLIC RELATIONS

2. Net margin to Earning assets

Net margin Earning assets Net Margin to earning assets Loan to deposit NIB Bank 2,078,896 126,596,958 1.64% 0.71 MCB 44,526,314 545,689,222 8.16% 0.46 HBL 56,398,203 892,767,696 6.32% 0.48

Bank Effectiveness:
Keh et al. (2006) observed that a measure of effectiveness assesses the ability of an organization to attain its pre-determined goals and objectives. An organization is effective to the degree to which it achieves its goals (Asmild et al., 2007). For computing the effectiveness scores for banks, it is essential to describe the objectives of banks. Intense competition in the banking sector has forced the banks to reduce all the input costs to the minimum and to earn maximum incomes from traditional and non-traditional activities with fewer inputs.I have selected: netinterest income and non-interest income as the output variables in measuring the bank effectiveness. The performance evaluation model as developed by Ho and Zhu (2004) takes the output variables of measuring efficiency as the input variables in the measuring effectiveness. Accordingly, the input variables in measuring effectiveness includes: advances and other earning assets.
Input advances Other earning assets NIB Bank 60,844,380 65,752,578 MCB 225,801,259 319,887,963 HBL
416,261,389

476,506,307

Output Net-interest income Non-interest income

NIB Bank 2,078,896 2,152,080

MCB 44,526,314 8,112,191

HBL 56,398,203 14,782,861

Effectiveness score
NIB Bank 3.34% MCB 9.65% HBL 7.97%

Effectiveness Score

The effectiveness scores obtained indicate how effectively the banks are transforming the outcomes of the stage 1 (Efficiency) to accomplish the pre-determined policy objectives of the banks i.e. net interest income and non interest income. The effectiveness score ratio of NIB Bank is lowest of all major competitors. The reason for this is the low spread between the interest income and interest expense and low non interest income. Bank Should try to enhance the spread between interests earned and Interest expense. The earning assets are not generating enough returns to meet all the expenses of the bank. Bank should invest more in securities and efficiently manage the investment portfolio to generate the high returns enhancethe spread between interest return and interest expense. This is possible by injecting more money in equity stock or receiving deposits to create investment opportunities. Non Performing loans should be brought at minimum level to enhance interest income and strong liquidity position of the bank. Non performing loans can be reduced by taking the securities with 100% of margin. Security with high liquidity are the best suited like gold. Gold not only is the most liquid securityit also provide an increase in value with the time.

Innovativeness:
Innovation is the creation of better or more effective products, processes, services, technologies, or ideas that are accepted by markets, governments, and society.(Wikipedia) Pakistani banking sector has experienced an expansion in banking industry due to globalization and entrance of Islamic banks in the market. It enhanced the competition among Islamic and conventional banks to attract and retain larger number of customers. Research indicates that customer of Islamic banks are more satisfied than conventional banks (Ashfaq, Kashif&Nadeem, 2010). Majority of banks has introduced the Islamic banking along with the conventional banking. NIB bank is still behind in Islamic banking. They should bring an innovation by introducingIslamic banking as well to attract more customers. Virtual banking has brought innovation in banking in recent years. Virtual banking is broadly defined in this as the provision of banking services via means other than traditional physical branches.Virtual banking exists in the forms of ATM, phone banking, home banking and Internet banking. MCB is the leading with virtual banking. Customers of NIB should be able tochecktheir Account Balances,Transfer funds, Pay their Utility Bills, Pay their Mobile Phone Bills via internet and mobile phones.The entire customers should be provided with the login and password so they can manage their accounts by using their home PC.

NIB bank can be innovative by offering deposits for shares. Bank should formulate a new department for managing the portfolio of the customers stock and maximizing the return for the customers in return of commission. In this way bank not only can gain distinctive competency which can lead to competitive advantage but also can maximize the net interest income by charging commission for the service. Another innovative idea for being distinctive is to introduce the network marketing in bank, to let the depositors become partners in the business after opening their account in the bank. Each depositor will be rewarded with the commission for bringing a specific amount of deposit in the bank.Each depositor can use his individual relations to bring new customers and new customers can use their relations as well as so resulting in endless chain creating endless opportunity for the bank. It will not only create the income opportunity for the depositors but also the deposit opportunity for the bank.

Bank Responsiveness:
Responsiveness can be considered from three angles: 1. Responsiveness towards customers 2. Responsiveness towards government and State bank of Pakistan 3. Responsiveness towards the organization itself.

Responsiveness towards customers:

Responsiveness is the willingness to provide help and prompt service to customers (Parasuramanetal.(1991). Uma Sankar,Kalyan, Satyakama and Sujit(2010) used Customers Confidence on Employees, Safe Feeling of Customers in Transaction, Courteous Employees and Adequate Support to Employees to study customer responsiveness towards banks. I have used the same variables to study NIB bank responsiveness towards its customer. Interviews were conducted using mall-Intercept technique to study the responsiveness of NIB bank towards its customers. Results shows that the customers have confidence on the employees, employees have also adequate support from the management, employees are courteous with the customers but the customers are not feeling safe while transacting with the bank. The reason for this is low market price of NIB shares and heavy losses in recent years.

Responsiveness towards State Bank of Pakistan and Government:

NIB bank has maintained special cash reserve of 15% as required to be maintained with the SBP on deposits held under the new foreign currency accounts.

The Bank's capital adequacy ratio as at December 31, 2011 was 14.11% compared to the minimum regulatory requirement of 10%. The Bank ensures adherence to SBP's requirements by monitoring its capital adequacy on a regular basis. Proper books of accounts have been kept by the Bank as required by the Companies Ordinance, 1984 (KPMG Taseer Hadi & Co, Chartered Accountants).

Responsiveness towards society:

When our country was hit by the most devastating floods in 2011, NIB Bank had proactively organized free medical camps in the worst flood affected district areas of Badin, Tando Adam, Sanghar and other rural areas of Sind district. As was done in 2010, several NIB staff participated in this initiative with exemplary zeal and dedication that brought a team of doctors, paramedics, and volunteers along with medical supplies to the affected population. (SHO).

Analyzing the Determinants of Bank Efficiency: The Case of Italian Banks

Claudia Girardone, Philip Molyneux*, Edward P.M. Gardener
School of Accounting, Banking and Economics, University of Wales, Bangor, Gwynedd, LL57 2DG, UK.

References:
Drucker, P. (1977), An Introductory View of Management, Harper College Press, New York, NY, . Berger, A., Humphrey, D. (1997), "Efficiency of financial institutions: international survey and directions for future research", European Journal of Operational Research, Vol. 98 No.2, pp.175-212. Benston, G.J. (1965), "Branch banking and economies of scale", Journal of Finance, Vol. 20 No.2, pp.312-31.

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