Category: Bank

Banks in Pakistan had been passed through various stages of development since independence. Throughout all these stages the marketing is not considered to be a banker’s cup of tea. But due to change in the economic structure and increased competition it has now become the fundamental management function. It is not only significant for the survival of the bank but also needed for improving efficiency of the services offered by the bank. Previously, Pakistani banking sector had not paid significant attention towards the marketing and market research. I this essay I discuss the micro and macro trends in the marketing of the banking sector.

Banking sector plays a very significant role in the economic development of the country. The downfall of the banking sector can cause the financial crisis. Many of the banking sectors are now putting emphasize on the marketing of their services to aware the customers regarding the benefits and improving the working efficiency. Banks are now focusing to developing the long-term relationship with the customers for the sustainability and thereby attracting the new customers. So, the relationship marketing gains quite significance in this sector. It focuses on the research on evaluation the requirements of the customers and developing new service methodologies.

Traditionally, banks were considered as the holders of finance, but gradually they made their perspective as the creators of the finance. But in this today’s era, scope of the banks has broadened quite significantly and now banks are considered as the purveyor of the money for the country’s economy. A strong banking system is the backbone of the developing economies and it reflects the country’s economic growth.

Looking at the statistics globally, out of 6.9 billion people in the world only 2.1 billion people owns an account in the bank and about 5.2 billion people uses the mobile phones. This translates that only about 30% of the world population have bank account while about 70% of the population uses phones. According to the Pakistan Telecommunication authority, the teledensity is 72.5% while on the other hand there are only 49 million bank accounts. There is still potential for ample growth of the banking sector, providing the innovative and effective marketing strategies to hit the untapped market.

According to the financial reports banks spent about 3.6% of their total expenditure on marketing and advertising. And it they plan to increase these expenditures on about 4% each year.

Recent trends in marketing strategies of banking sector:

1. Advertising is the most common promotional tool in the banking sector. Banking sector is now investing a large portion of their budget on the promotional advertisement.
2. Customer expectations are continuously increasing due to the rise in literacy rate and customers are now more aware than ever before. They are now expecting more value-added banking services and are ready to pay premium for it.
3. Mobile banking is getting very popular day by day. It is becoming essential demand by the customers. Its blessing for the majority of people whom it is unable to visit the branch for routine transections. Banks are also taking huge benefit from the mobile banking, as it cuts the cost of service facilitation quite significantly.
4. Banking sector is also using the social media for their marketing purpose. Almost every financial institution has developed their social media cells responsible for the promotion of various services. Social media is becoming quite popular among the people today and it is very effective promotional tool.
5. Due to the technology revolution in last few years, forces every industry including the financial institutions and banking sector to evolve their marketing strategy. Virtually all the banks have now their websites and internet banking. E-newsletter has now become the most effective form of the marketing, followed by the search engine optimization.
6. Contrary to the past banking sector are increasing their marketing budget every year despite of overall state of the economy. It has now become the major strategy driver for their business. This is due to the fierce competition and ever-increasing customer demands.
7. Instead of opening as many accounts as possible as before, banking sector is now focusing on the retention of the customer. They are now investing in the customer relations and quality service. Customer’s satisfaction has now become heir top most priority. Banks are now investing in the market research and surveys to analyze the rising demands of their current and potential customers to uplift the level of customer satisfaction.
8. The studies have shown that with the combination of emails and traditional promotional channels efficiency of service marketing is increased significantly. Banks are now developing the data base of the good customers as well as the potential ones. Gathering the email address has never been so important than ever before.

Axis Bank Ltd., the first bank to begin operations as a new private bank in 1994 after, Government of India allowed new private banks to be established. Axis Bank was jointly promoted by the Administrator of the specified undertaking of the: Unit Trust of India (UTI), Life Insurance Corporation of India (LIC) and General Insurance Corporation Ltd. Additionally, with associates National Insurance Company Ltd., The New India Assurance Company, The Oriental Insurance Corporation and United Insurance Company Ltd.

Axis Bank is the third biggest private part bank in India. The bank offers the entire range of money related administrations to client portions covering Large and Mid-Corporates, MSME, Agriculture and Retail Businesses. The Bank has a substantial impression of 3703 branches and 13,814 ATMs spread over the province as on 12 Aug 2016 which is the biggest ATM organize in nation among Private Sector Banks in India. The abroad tasks of the bank are spread over its seven worldwide workplaces with branches at Singapore, Hong Kong, DIFC (Dubai International Financial Centre), Colombo and Shanghai and delegate workplaces at Dubai and Abu Dhār.

With an accounting report size of 6,91,330/ – Cr. as on 31st March 2018, Axis Bank has accomplished steady development and stable resource quality with a 5-year CAGR (2012-13 to 2017-18) of 15% in Total Assets, 12% in Total Deposits, 17% in Total Advances.

The most recent contributions of the bank alongside Dollar variant are the Euro and Pound Sterling variations of the international travel currency card (TCDC Card). The travel currency card is a mark based prepaid travel card which empowers the traveler’s global access to their money in neighborhood cash of the meeting province in a sheltered and helpful way. The bank has qualities in both retail and corporate managing an account and is focused on embracing the best business rehearses internationally in request to accomplish perfection.

This research is titled as ‘Comparative Analysis of Products and Services of Axis Bank’. It involves a deeper study into the various services rendered and the products offered by the bank and doing an analytical study thereafter on the basis of the customers visiting the branch.

This study involves preparation of a questionnaire consisting a formal set of questions to be asked from the customers/consumers visiting the bank branch, with regards to the ease of banking and the features of products and services held and used by them. The prime purpose of this research is to do a comparative analysis of Axis Bank with its other competitors in the private sector market in terms of customer preference and overall performance.

The technique of ‘Random Sampling’ has been put to use in this research and a total of 100 respondents have been questioned to assess the bank on various important and crucial parameters that measure its operational efficiency.

A proper literature review has also been done of the existing work done in the same field in order to understand the concepts more precisely and give the research a better direction and to assist in formulating certain hypothesis. The crux of the following researches has been studied and put to use in the study above, these researches are highly sophisticated and revered by.

The following is the list of studies with their crux:

1. Uppal R K and Poonam Rani (2012), in their study titled Customer Perception towards Better Banking Services in India- An Empirical Study, analyzed customer perception about CRM, reliability, accuracy, security and transparency among the customers of public sector banks, Indian private sector banks and foreign banks in Amritsar, Punjab. They have found that most of the customers are satisfied with banking services and that customer satisfaction can be improved by ensuring more speed in rendering transactions and giving prompt services.

2. D Mishra (1997) makes a study on the performance of commercial banks in India choosing relevant parameters like quality of service, risk management, profitability etc. His conclusion is that the banks should try to increase quality, balance risk management, and optimize profitability to survive and succeed. He identifies four challenges for the bank namely competition, credit, customer and control.

3. Gaganjot Singh (1998) in his study ‘New innovations in banking industry – a study of new private sector banks’ views that the new private sector banks in India are using better technology and are offering better services to the customers. The new private banks have emerged as a model to the banking industry in terms of service levels, ambience, technology etc. As the public-sector banks have already established a huge customer base, they become complacent and are slow to become customer friendly. They are also less innovative in the use of technology-assisted customer service. Because of their huge customer base, they feel that they can withstand competitions from new generation banks.

4. Parimal Vyas (2000) studied customers’ satisfaction from the services provided by different banks and analyzed the response of customers towards the actual time taken by banks to complete the banking transactions. The findings of the study revealed that nationalized banks and co-operative banks need to improve on reducing the time taken to complete banking transactions. Comparatively the private and foreign banks take much less time for completing their transactions. The study suggested that the nationalized commercial banks and cooperative banks must increase the use of information technology and customer relationship management to deliver standardized services to their target customers.

5. Mosad Zineldin (2005) in his study ‘Quality and Customer Relationship Management as Competitive Strategy in the Swedish Banking Industry’ stated that a bank had to create customer relationships that deliver value beyond that provided by the core product. This involved added tangible and intangible elements to the core products, thus creating and enhancing the ‘product surrounding’. One necessary condition for the realization of quality was the creation of value-added services, quality measurement and control. Thus, it was an important function to ensure the fulfilment of given customer requirements. The key ways for building a strong competitive position were value-added services and differentiation.

Research Methodology

• Type: Descriptive.
• Method: Questionnaire (Formal).
• Locale of the Study: Axis Bank Limited, Phagwara.
• Sampling Design. The technique of ‘Random Sampling’ has been resorted to, to perform the study. A total of 100 respondents were taken to form a sample for fulfilling the purpose. Random sampling technique was chosen to cover all types of customers of the bank and giving each type an equal opportunity to be a part of the sample.
• Data Collection. A proper literature review has been done to perform the task of data collection. Both the sources, namely primary and secondary data sources have been used to collect data. The data focuses on collecting both the qualitative and quantitative aspects regarding the customer satisfaction. A proper questionnaire with formal set of questions was framed to collect the data from the customers visiting the branch.
• Statistical Framework. In regards to the statistical framework, the following tools and techniques have been used to collect study and present the data. The concept of ‘Percentage’ has been used to differentiate amongst the categories of the customers. The interpretation of the data has been done for both the aspects, namely qualitative and quantitative. The data set has been presented through effective ‘Pie Charts’ to enable easy and quick understanding. The result of the study has been presented effectively in the form of a ‘Two Way Table’.

Findings and Interpretations

The majority (39%) people have savings account in axis bank. While, 23% have current account and FD & other accounts are respectively 28% and 10%. Thus, we can say that most of customers prefer savings account in Axis Bank.

Majority of the customers give ‘good’ criteria lesser give ‘very good’. It shows service quality of axis bank to its customers.

Many customers have other products other than saving/salary account such like, locker, investment, OD, CC, loan, credit card, etc.

Majority customers are accessing their accounts through walk-in to branch less number of customers are using other channel like, mobile banking, net banking, phone banking. Which describes lack of awareness about technology in banking service.

Review of customers on ease of access: the first number is bagged by HDFC and the second one is ICICI and the last is Axis Bank.

In the criteria of flexibility HDFC is best and ICICI is second and last is Axis Bank.

Axis bank is giving better service regarding transactions as compared to HDFC and ICICI.

From the research we can see that axis bank should improve technology for using banking operations and products.

Majority customers rated the axis bank in ‘good’ criteria and less in ‘poor’. Which shows that axis bank is giving proper products and services to customers.

24% respondents said that they expect less formalities while opening account. While 22% respondents said that they expect proper information, other respondent expect quick access, variety of products and working hours of banking.

So, the bank has good relationship with customers. The customers are satisfied with the relationship manager service provided by the bank. The bank and its customers have a long-term relationship. Axis Bank has the tendency to retain its customers at any cost. The number of customers using the Net Banking and Mobile Banking service forms a very low percentage of the total customers. The accounts of these three banks don’t have much difference in terms of features but when it comes to number of branches and ATM’s, HDFC Bank is ahead of Axis Bank. The customers of Axis Bank are satisfied with their savings and salary accounts.

Conclusion

Much is changing in the banking landscape — with regulation, technology, demographics, customer expectations, greater competition and issues with banks’ own legacy business and operating kneels. The challenges are clear, even if the karate endgame is not. The contemplate primarily was on the client introduction that how they think, what they need from their banks and how they take choice heading off to any bank. In this examination I found that the obligation of Axis Bank with its clients is great, since Axis Bank essentially centres on holding their clients. This study finds that anyway Axis Bank isn’t the main restricted area bank, however its huge scope of items and accessibility of choices improve it one of the banks in India. The bank should give careful consideration on giving updates and should expand the level of administration, because the contenders of Axis are better and growing rapidly. The bank should attempt to expand the utilization of innovative methods like versatile and net managing an account among its clients, the customers should be made familiar with newer and easier ways of banking. The bank should keep up with its thought of serving the customers at priority, this is so because it gives the feeling of belongingness to the customer and gives an edge to the organization over the other players in private banking industry.

Recommendations

AXIS Bank was one of the first private banks to launch operations in the country in 1994, after the Government of India passed a resolution in favor of privatization. An IT savvy bank, AXIS Bank is a pioneer in adopting modern technologies in the banking sector. It a very large network of branch offices and extension counters across the country. AXIS Bank needs to promote and encourage people to use internet banking. In terms of ease of access AXIS Bank needs to increase the number of ATM’s. The bank should be more flexible to compete with its competitors like HDFC, ICICI. The bank should focus on attracting and attaining both the business class and other segments, by offering wide range of products and services tailored for matching their specific requirements because, these two classes are significant for keeping the money flow in check and maintain the money administration.

Nowadays competitive economy banking sectors has been facing forceful challenges in regarding both customer base and performance. Giving customer satisfaction is highly significant function of service industry in today’s economic environment. Service quality is the excellent strategy and also play a key role in service sector in general and banking sector in particular to satisfy the customer’s need. The main objective of the research is to examine the customer satisfaction level between HDFC and corporative bank and also to find the benefits of customer satisfaction for the bank. There are two source of data – primary data and secondary data. The primary data is collected from questionnaire and secondary data is collected by previous researcher and Internet. There is statistical too, which is used in this study is percentage analysis and gap analysis. From this study the conclusion is that the customer satisfaction level of private bank (HDFC) is high than cooperative bank. Private bank is more polite and friendly to customer than cooperative bank and also private bank take more care in collection of personal information than cooperative bank. Employees are more capable in private bank to solve complaint adequately.

Introduction

History of Banking in India

In India banking system has been created in 18th century. The first bank is the general Bank of India which is opened in 1786 and the second is Bank of Hindustan; both of these banks are not in existence. The oldest bank in presence in India is the State bank of India, which created in the bank of Calcutta in 1806, which without interval became the Bank of Bengal this was one of the three presidency banks, the other are Bank of Bombay and the British East India Company. These banks merged in 1925 to form Imperial bank of India, which after India’s independence, became the State Bank of India.

Classification of Banks in India

In India banks are basically classified as scheduled and non-scheduled banks. Scheduled banks are further classified as commercial banks and cooperative banks. Commercial banks are also further classified as public sector banks, private sector banks, foreign banks and Regional Rural Bank (RRB). And, cooperative banks are classified as urban and rural.

Cooperative Banks

Cooperatives banks are listed under the Cooperative Societies Act, 1912 and controlled by the Reserve Bank of India under the Banking Regulation Act, 1949 and Banking Laws Act, 1965. All cooperatives stick with the principles of ‘one member, one vote’ and ‘no profit, no loss’. Basically, they are formed by a voluntary group of people with the aim of satisfying their economic, social and cultural needs in a joint venture.

HDFC Bank (Private Banks)

Private banks states that banks, whose majority of stake is held by individuals and corporations. HDFC Bank is an India banking and financial service company. It has its headquarters in Mumbai Maharashtra. It has almost 104,154 permanent employees. HDFC Bank is India’s largest private sector lender by assets bank. It ranked 60th in 2019 Brand Top 100 Most valuable Global brands. In 1994 HDFC Bank was incorporated, with its registered office in Mumbai, Maharashtra. Its first corporate office and a full-service branch were installed by the Union Finance Minister, Manmohan Singh.

Customers

A customer is an individual that buying another company’s goods or services. Most businesses compete with other companies to invite customers, either by advertising their products or by giving products at lower prices, in an effect to expand their customer.

Customer Satisfaction

Customer satisfaction shows fulfillment that customers develop from doing business with a firm. In other words, it shows that how happy the customers are with their transaction and also with overall experience with the company.

Objective

1. Examine the customer satisfaction level between HDFC and Corporative Bank.
2. Benefits of customer satisfaction for the Bank.

Literature Review

A review of previous studies shown that studies that examined the customer satisfaction between the co-operative bank in Indian, N. A. Kavitha and Muthumeenakshi says that co-operative bank are commonly formed by persons fitting to the same local or professional community or having a common interest and providing a wide range of banking and financial services like loans, deposits, banking accounts, etc. to the members. The banks were leading many studied to understand how product and service met or exceed customer prospects for the development of performance or quality of service. This study shows the positive attitude toward the service of bank and the behavior of employees for translation services. But related to other private and public banks, co-operative banks are little poorer in the acceptance of technology and modern tools. Slowly the co-operative banks are using more modern technology for facing competition from other banks and also for improving their services in qualitative manner.

A review of previous studies shown that studied that examined the customer satisfaction between the Private bank (HDFC Bank) in India. Rupesh Singh says that, after doing research for relative study of customer satisfaction for HDFC bank and state bank of India we came recognize different requirements of consumers, their respected suggestions, and responses to the different questions. With this data we can say that customer satisfaction level of most respondents is high for SBI and HDFC banks which is provided by survey. SBI and HDFC provider good service for the customers like ATM, NET banking, location advantages etc.

Research Methodology

It describes the source of data, sampling size, study area, sampling method, and testing of questionnaire. This study needs data to be collected from primary source and secondary source. The primary data is collected from questioners and the secondary data is collected from the various earlier research paper and Internet. Primary data was collected from questionnaires; secondary data was collected from different research paper and Internet.

Response of Study

Demographic Representation

1. Gender: Male – 26.9%; Female – 73.1%.
2. Age: 18-25 year – 92.3%; 26-30 year – 7.7%; 31-40 year – 0%; Above 40 – 0%.
3. Profession: Govt. Employee – 0%; Private Employee – 30.8%; Business – 3.8%; Self Employee – 0%; Student – 61.5%; Housewife
4. Monthly Income: Upto 10,000 – 57.9%; 10,000-20,000 – 31.6%; 20,000-30,000 – 5.3%; 30,000-40,000 – 5.3%; Above 40,000 – 0%.

Cooperative Bank Vs Private Bank (HDFC Bank)

According to the survey of this question, experience management team it is found that more people are satisfied in private bank than cooperative bank. The ratio of cooperative bank and private bank is 44.4% and 52%.

According to the survey of this question, care in collection of personal information it was found that more people are satisfied in private bank than corporative bank, the ratio between corporative and private bank is 52% and 68%.

According to the survey of this question, customer friendly environment at bank, it was found that more people are satisfied in private bank than corporative bank, the ratio between corporative and private bank is 52% and 67%.

According to the survey of this question, employees are capable of solving complaint adequately, it is found that more people are satisfied in private bank than cooperative bank. The ratio between cooperative bank and private bank is 52% and 76%.

According to the survey of this question, customer feedback service, it is found that more people are satisfied in private bank than cooperative bank. The ratio between cooperative bank and private bank is 41% and 68%.

According to the survey of this question, there is the provision of financial advices, more people say yes in private bank than cooperative bank. The ratio between cooperative bank and private bank is 62% and 65%.

According to the survey, more people are satisfied with overall service in private bank than cooperative bank. The ratio between cooperative bank and private bank is 66% and 72%.

Gap Analysis

With the help of gap analysis, we find that more care in collection of personal information is taken in private bank that is 68% than cooperative bank that is 52% out of 100%. Private bank has more customer friendly environment at bank than cooperative bank the ratio of cooperative bank and private bank is 52%and 67%. Employees more are capable of solving complaint adequately in private bank than cooperative bank the ratio is 52% and 76%. Customer feedback service is more adequate in private bank than cooperative bank the ratio is 41% and 68%.

Findings

According to the survey for employee of bank have the knowledge to answer customer question both bank customers are satisfied with the employees of bank. Private bank has more polite and friendly staff then cooperative bank. Private bank employees are always willing to help you than cooperative bank. Private bank employees have more experience management team than cooperative bank. Private bank employees are more capable in taking care in collection of personal information than cooperative bank. Private bank has more customer friendly environment than cooperative bank. Private bank employees are more capable of solving complaint adequately then cooperative bank. Customer feedback services is more adequately in private bank than cooperative bank. In private bank there is better provision of financial advices than cooperative bank. In both banks customers are satisfied with the overall service but in private bank customers are more satisfied than cooperative bank.

Conclusion

After directing research for relative study of customer satisfactions in cooperative bank and private bank I derived to know that there are different requirements of consumer and different reactions toward different questions. With the survey I can say that customer satisfaction level of private bank (HDFC) is high than cooperative bank. Private bank is more polite and friendly to customer than cooperative bank and also private bank take more care in collection of personal information than cooperative bank. Employees are more capable in private bank to solve complaint adequately. So, private bank provides more customer satisfaction than cooperative bank.

Limitation of the Study

• The sample was collected from Nagpur city only if we take different city may be the result will be different.
• The sample size was 60 only if we take more samples may be the result will be different.

References

1. Dr.E.Hari Prasad, 2017 (Associate Professor) Service quality and customers satisfaction in HDFC bank, Pacific Business Review International Volume 9 issue 11, May 2017.
2. N.A. Kavitha and Muthumeenaskshi, 2016 A study of Customer Satisfaction and Perception towards the service of co-operative Banks, Published in International Journal of Engineering Technology, Management.
3. Rupesh Singh, SBI and HDFC “Comparative Study of customer’s Satisfaction towards HDFC bank and State Bank of India”.
4. https://www.google.com/search?q=researchgate+link&oq=link+of+resear&aqs=chrome.4.69i57j0l5.15929j0j7&sourceid=chrome&ie=UTF-8
5. https://www.google.com/search?q=investopedia&oq=inves&aqs=chrome.5.69i57j0l5.44817j0j9&sourceid=chrome&ie=UTF-8

Money saving is a habit, a process where we learn to be realistic. It is the most significant start of being practical. One can start save money only she or he has built up a mind set to face the reality or have any idea about currency importance value. Ways can be thousands of saving money.

Money saving ways varies on age mentality and maturity. In a word only way of saving is to curtailed expense and stop unnecessary buying’s for curiosity. The best way of save money is the mind set of saving.

It is a habit starts from childhood sometimes. Kids save money in piggy bank, and also from pocket money by not buying chocolates daily or hiding moneys secretly. It was a simple word, but in deeper, the kid is resisting his wish and trying to be realistic. Some very common things I always do for saving are, I hide money in books, jars or somewhere beyond my sight to resisted myself from curiosity buying’s.

A mature option is to open a bank fixed deposit account, which is motivated for saving by giving a high rate of interest. Most of the banks give 9% to 12% interest against FDR accounts.

Investing on companies by holdings share. It gives equity as well. Though investing on share is high in risk and not a humble option for saving but profitable sometimes. To reduce risk preferable share can be chosen as option.

For risk free option, ‘debenture’ is the best option. It is out of risk, gives security and a nominal rate of interest as well. Another reason why debenture investment is better than shareholding as saving is, the amount of debenture value is returnable. So, if investing can be down on debentures, it is increasing profit and counting as a contribution in a company also.

Giving loan to any trustable person is another way. Though it may cause any moral hazard but still in the option list. Till the loan is being repaid we can assume that our money is safe secured.

Parents are also sometimes an option of savings. They keep us reminding to be accountable on expense. I’ve a personal experience on that, my sister has no habit of saving, my mother used to encourage her by save some from her pocket money. She didn’t use to give the whole amount rather save some to her and at two months end my mother showed her this is how saving works.

Money saving is a task of matures. Difficult, challenging but all it need is a strong mindset and this mental stability is the best way of saving.

The World Bank is an international organization that has the largest sources of development assistance that help its group to develop countries with various goals to make sure people around the world can live a better life by eradicating extreme poverty and hunger, achieving universal primary education, promote gender equality and empower women, reduce child mortality, improve maternal health, combat HIV/AIDS, malaria, and other diseases, ensure environmental sustainability and develop a global partnership for development. The World Bank was founded in 1944 during the Bretton Woods Conference. Its initial aim was to help rebuild the economies of European countries struggling after the Second World War. It did this by providing loans to these countries with specific conditions of the World Bank. Later on, its aim spread out to third-world countries outside of Europe too.

The World Bank, an international organization, has so many economic and humanitarian benefits for developing countries and their citizens. The key point is that thanks to its successful activities over the past 20 years it has been possible to reduce poverty in third-world countries from 40% to 21%. Because poverty is one of the greatest forces that affect a country’s economy, reducing it will help boost economies. That is why the World Bank should be seen in this as a clear advantage. Moreover, thanks to the World Bank, life expectancy has increased by 20 years and the number of child deaths has decreased by 50%. Obviously, this is another benefit, as a higher life expectancy could lead to an increase in per capita income in a country, which can help improve their economy.

Of course, nothing is without flaws. And the activity of the World Bank is not an exception. The economic advantages of the World Bank may come with a cost, which will not be specified, as it’s from the perspective of the World Bank or its supporters. A clear example of this is the policy of the World Bank towards Brazil in 1981. That year, it financed Brazil’s Polonoroeste development program, which caused uncontrolled migration and a land rush that eventually led to the destruction of rainforests. This had an extremely negative effect on their economy, as they lost a significant amount of coffee and cocoa, which were the source of imports for their exports.

Nevertheless, I believe that the pros of the World Bank still outweigh the cons, because its activities still help to strengthen the economies of many countries, fight various world problems, and contribute to the prosperity of today’s society.

Artificial Intelligence and Banking

As global technology has evolved over the years, we have moved from Landline phone to Mobile, Television to Internet and Branch Banking to Mobile Banking and today we are smoothly and gradually adopting Artificial Intelligence (AI). It was John McCarthy who introduced the word AI to the world in 1956. It involves process automation of robotics to the actual process of robotics. AI is very popular today among large companies owing to the data handled by these companies. The unique feature of AI is that it understands the data patterns that have led to the growth in demand for it. AI is much more efficient in identifying data patterns than humans thus it is beneficial for companies to understand their target group and give them better insight. AI is being seen as the next big thing by companies all around the world including the finance industry. It has the ability to change banking and financial transactions in the world. AI is not the only disruptive technology. The advanced analytics, blockchain, quantum computing, internet of things, cloud etc. are in the row to change our banking experience in the coming years.AI is of two types, Weak AI and Strong AI.

• Weak AI- It is also described as Narrow AI, is the system which is set up only to fulfil or accomplish a particular task. It works according to the rules that are set and are bound by it. Weak AI is just like humans, has the capability of all cognitive functions and is not distinct from the human mind. The best example of weak AI is Apple’s Siri or Amazon’s Alexa.
• Strong AI- It is also known as full AI, has much bigger prospects than the weak AI with huge capabilities and functionality. It can broadly mimic the human brain. It is so powerful that its actions and decisions are exactly similar to a human being. It also has the understanding of power and consciousness.

However, the difficulty lies in defining intelligence accurately. It is highly difficult to set boundaries to intelligence as far as strong AI is concerned. Hence weak AI is more preferable, because of its ability to accomplish assigned tasks only with optimum efficiency compared to a human.

Artificial Intelligence and Bank Journey

As per 2016 survey by Bloomberg Capital conducted in association with Regina Corso Consulting, the national survey asked American adults what they thought about traditional banking institutions, Fintech companies and new financial technologies. Interestingly, Majority of Americans believed that most of the financial institutions will not exist in same form in the next few decades, needless to say traditional Banking will be extinct. As per Accenture Financial Services Global Distribution & Marketing Consumer Study 2017, for majority of consumers, especially Gen Y and Gen Z- Google, Apple, Facebook and Amazon (collectively known as GAFA) are attractive alternatives to traditional financial providers. The trend shows that millennials are accustomed to and prefer the level of technology offered by the tech giants. Fintech’s and tech giants like Google, Apple who already have entered digital payments market astounding strides in technology including AI. They have in-house AI scientists, big data and state of the art technology. Now, the challenge is before the bank to complete with fintech and technology firms at a much bigger scale.

Indian Scenario- Indian banking space, a decade or two back one of the most cumbersome fields as far as customer convenience was concerned involving long ques and lengthy procedures. Since then, this sector has come a long way with automation, core banking, ATMs, online banking services, e-KYC and much more serving today’s tech-savvy customers. Since last 2-3 years, the Indian Banking and Financial services has been hit by Artificial Intelligence. Machine Learning and virtual agents. India’s biggest bank SBI launched SIA, an AI-enabled virtual assistant specializing in assisting customers with everyday banking tasks that handles nearly 10,000 inquires per second. HDFC bank, has introduced “Eva”. IndusInd bank has launched few banking services supported by Alexa from Amazon. Introduction of AI is banking is not just limited to chatbots. SBI is using AI to study in real time, the facial expression of its customers visiting the bank’s branches to find out if they are happy or sad. ICICI Bank has deployed robotics software to ease over 200 of its processes across various business functions. Research and prediction say undoubtedly AI will herald a transformational change in the banking industry. Currently AI is being used for customer service, wealth management, advanced analytics and fraud detection. For any bank to survive and grow the most important criteria is increasing bottom line. Apart from gaining market share banks also look at cutting costs especially for tasks which are mundane and repetitive. Squandering human resources on such tasks just adds to the costs of running business. As per Autonomous report on AI, by 2030, traditional financial institutions can save 22% in costs. The report says that banks can save $ 490 billion by adopting AI in front office. Undoubtedly, financial institutions will reap benefits of AI, although the cost of investing is very high but there is no two ways. After the current pandemic of coronavirus, the way of living life will be changed and one of them will be the way of doing banking by the people. People will prefer to go digital and the bank who has already invested huge amount on digitisation will take the lead.

AI can create ‘wow’ moments for the customers

Customers expect bank to anticipate their need and preferences. As banks move forward in digital bank journey, there will be vast amount of digital data available with banks. AI can bridge the gap between isolated customer interactions into a seamless thread of customer experience. Intelligent prediction and customization will make customers feel as if every product or brand experience was tailored just for them. We currently live in a world where we constantly leaving our digital footprints, which display our spending habits, preferences in travelling, shopping etc. On applying analytics and AI, to this real time data, banks can understand their customer’s need and offer products which will give them ‘wow’ experience.

In today’s fast paced world with time constraints very few customers actually visit banks to enable them for creation of a long-term relationship. The only link is data of customers. It is a bitter truth for banks the quaint banking days are over. In 5 ways AI has transformed banking and finance industry,

Risk Assessment and Decision Making

As AI is learning from past data, it is natural that AI should succeed in the Financial services domain, where book-keeping and records are second nature to the business. Let’s us take the example of credit cards. Today, we use credit score as a means of deciding who is eligible for a credit card and who is not. We can make it more customized where interest rate will be charged on the basis of analysing individual’s loan repayment habits, the number of loans currently active, the number of existing credit card, etc. Now, take a minute to think about which system has the capability to go through thousands of personal financial records to come up with solution- a learned machine of course. This is where AI comes in. AI also makes loan approvals easier, reduce operational costs and these savings can then be extended to customers in the form of lower rates.

Fraud Detection and Management

The loan a bank gives you is a basically someone else’s money, which is why you also get paid an interest on deposits and dividends on investments. This is also why banks and financial institutions take fraud very, very seriously. AI is on top when it comes to security and fraud identification. It can use past spending behaviours on different transaction instruments to point out odd behaviour, such as using a card from another country just a few hours after it has been used elsewhere or an attempt to withdraw a sum of money that is unusual for the account in question. AI has the ability to stop this type of fraud.

Financial Advisory Services

AI is also expected to play a significant role in the sales and recommendation of financial products. For instance, a robo-advisor might recommend portfolio changes. It is also believed that robo-advisors could potentially employ some level of machine learning to recommend a specific car or home insurance plan. A report states that artificial intelligence will become the primary channel through which financial institution and their clients will interact in future.

Another evolving field is bionic advisory, which combines machine calculations and human insight to provide options that are much more efficient than what their individual components provide. Collaboration is key. An excellent balance and the ability to look at AI as component in decision-making that is as important as the human viewpoint is the future of financial decision-making.

Investment and Trading

Investment companies have been relying on computers and data scientists to determine future patterns in the market. As a domain, trading and investments depend on the ability to predict the future accurately. Machines are great at this because they can crunch a huge amount of data in short while. Machine can also be taught to observe patterns in past data and predict how these patterns might repeat in the future. While anomalies such as the 2008 financial crisis do exist in data, a machine can be taught to study the data to find “triggers” for these anomalies and plan for them in future forecasting as well.

Personal Financial Management

Personal financial management is one of the recent developments on AI-based wallet. Wallet started by a San Francisco based start-up, uses AI to build algorithms to help the consumers make smart decisions about their money when they are spending it. The idea behind the wallet is very simple. it just accumulates all the data from your web footprint and creates your spending graph. Advocates of privacy breaching on the internet may find it offensive but, may be this is what lies in future. From a small-scale investment to a large investment AI commits to be a watchdog of future for managing finances.

A Game Changer Technology

It is estimated that marketplace lending is expected to grow from 48% annually from 2019 onwards. Looking at Indian market as an example, currently, there are approximately 60 million small businesses in India looking for funding. Out of which only 33 percent are able to access any kind of institutional credit. Almost 80% of Micro Small and Medium enterprises self-finance themselves, 32% rely on their friends and relatives for credit and an additional 12% try raising from informal banking networks. So, there is immense opportunity available in the market. Sooner or later AI will become inseparable part of banking journey. The early movers will gain a lot in terms of market share and customer retention.

AI technology combines with big data and machine learning, monitors more than 1000 parameters to learn and authenticate behavioural biometrics of a customer. Information like how customer holds the phone, the way they interact with it, touch it, the way they scroll and swipe is collected from customer’s mobile. Customers’ cognitive choices, such as how they fill in their passwords or dates are monitored and analysed.

Face recognition in banking has gained momentum in past few years. It is part of biometric authentication. Recently OCBC Bank started AI powered facial recognition system at its Holland Village branch. The system instantly identifies its ‘premier banking’ customers and this creates in enhanced customer service wherein managers are equipped with customer’s banking history in addition to be able to identify and greet customers by their preferred name, offer them their preferred drinks and magazines. Facial recognition system can be used in the ATM also where ATM will authenticate your face before cash withdrawal. This will reduce the risk of ATM card skimming.

Risk, issues and challenges with AI

Bank do hold vast amounts of data which can be leveraged for benefit customers and clients. But there is a catch, this data is confidential. Banks need to protect sensitive data without adversely impacting the project. AI Algorithms are also susceptible to bias, the fact being they are created by humans and by nature humans are biased. It is essential that while building, this factor is accounted for. Checks and controls need to be added at the time of implementation of AI. Banking and Financial Industry also need to consider the ethical and legal liability associated with AI. Regulatory functions attract huge penal liabilities. For example, if a loan application is rejected by machine learning system the decision should be based free from bias. But this does not make AI case weak, rather the finance industry and regulators need to come together to work out these issues in benefit of industry and customers alike. No technology is without its pitfalls.

Conclusion

Artificial Intelligence is slowly changing the way people think and act and it is taking our mind to the next level. Imagine a machine that has the ability to think, learn, create and form its own ideas and thoughts. With the benefits and potential of such platform, computer power has increased by massive amounts.

Face recognition, finger prints or retina scan for unlocking entrance or access points are just some of the common applications of AI today. The potential and future development in this field is somewhat endless with ongoing research. Undoubtedly, the banks and financial institution that benefit most from AI will be those that are prepared to adjust their old age approach.

Artificial intelligence will clearly have a huge impact on the financial services sector. Banks will redefine how they work, what they sell and how they interact with their customers and employees. They will redefine their operating structures for an AI-enabled process and operational efficiency. And new AI application will create growth for the bank through improved customer service and employee experiences.

Introduction

On 11th of February 2019 the Royal Banking commission presented its final report on the misconduct of banking and financial sector, revealing sickening behaviour of the financial industry. The investigation was on going since Dec 2017, highlighting unethical behaviour of banking, superannuation, mortgage and other financial industries and spotlighted some shocking facts about the big corporations. The need for the Royal commission surfaced after years of scandals and sharp decline in consumer’s trust in country’s financial services but on the other hand the profits of financial corporations soared. The things got worse after more cases surfaced about misleading financial planning advice, breaches of anti-money laundering laws and work cultures allegedly to reward aggressive sales tactics being just a few of them. Showing that these financial disrespected their clients trust acting in a dishonest nature and failing to show duty to care, complaints continued over a extensive period in few cases, charging people who have been dead for years.

‘There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their boards and senior management’ (Hayne 2001). The findings in the report clearly stated that how banks have been unethical and carrying out their business in inappropriate way. According to the report, ‘Commissioner Kenneth Hayne suggested the idea of six ethical principles to be followed by the financial institutions to inform the conduct of financial services entities: 1- Obey the law, 2- Do not mislead or deceive, 3- Be fair, 4- Provide services that are fit for purpose, 5- Deliver services with reasonable care and skill, 6- When acting for another, act in the best interests of that other.’ (Motion). Now, if we look at these suggestions they are just the basic ethical principles for all businesses and corporations, so this was a remark that shows that the financial institutions have failed to follow the basic ethics and to show duty to care and compassion towards their customers.

Impact of the Royal Commission’s report

It has been a year since the report and little action and implementation has been seen, people’s sense that big banks get off scott-free is in away usually true, but there may be an exception this time. In the report Commissioner Hayne gave 76 recommendations out of which 54 were directed to the government, they proposed some fixing in laws to prevent misconduct by financial institutions. As right after the commission report was published, the Australian government got into action and few weeks later released a report called; ‘Restoring trust in financial services’, in which the government agreed with most of the recommendations and informed that they will be bring some legislation which will be implemented timely in the period of almost 2 years. Government’s financial industry regulating bodies such as APRA and ASIC were also mentioned in the report for not fulfilling their duty and failing to detect the offences and frauds in financial industry, APRA’s officials were not even present in the hearing. The government acted on some recommendation for regulating the banks and insurers by reviewing the regulating bodies like APRA and passed legislation to strengthen the accountability of superannuation funds, the government will pass legislation for the rest of implementation by the end of 2020.

Banks, Super and Other Financial Institutions

Although, after the commission the banks started to take some responsibility and accepted a few of their unethical behaviour. In promulgating incipient provisions associated with the costs of cleaning-up years of deplorable misconduct, the big four are putting more finances aside for remediation including compensating wealth to customers who were charged fees for services they didn’t receive. Banks are known for prioritizing profits over customer’s interests, they tend to approve more loan applications to people when interest rates are high and less when interest rates are low, without assessing fulfilment of criteria or applicant’s circumstances. Mortgage businesses have been mentioned for showing no compassion and leniency with their clients, in one case, threatening the wife of a dead man to auction the house due to non-payment of few instalments by the grieving family in financial hardships. Other industries have been accused of giving advices to customers and forcing them to invest in schemes which generates them profit and losses for customers in the long run.

Super industry on the other hand has been looked upon as scam by many people, as a lot of people who pay for super to have a better retirement, spend the rest of their life fighting for it and get little to nothing and getting charged for unprovided services. The employers have been accused of rewarding employers for using forceful tactics to lure consumer into different schemes, the report said. Many people had to, and still go through court and wait for years to get their superannuation in the last few years, although some law were passed a few years ago, due to increase in number of complaints, to facilitate genuine people to get their superannuation easily. ‘Superannuation contributions made prior to bankruptcy with the intention of keeping money out of creditors’ reach will now be recoverable by bankruptcy trustees. The Federal Government will amend the law so the courts will be able to take a bankrupt’s history of contributions into account to determine whether the intent was to defeat creditors. The amendments will address the High Court’s decision in Cook versus Benson, which cast doubt on a trustee’s ability to recover super contributions.’ (John Collet 2006). There is a need for future research to assess whether the recent regime inquiries and the cognate reformative measures have achieved the desired effect of amending the Australian superannuation system.

Role of government

In 2017, when the call for royal commission was heard everywhere, the opposition’s Mr. Shorten favoured the call for royal commission, but the government’s prime minster Turnbull opposed it and asked for a different approach. Government’s suggestion was to bring the directors and executive officers of the big banks in front of parliament once or twice a year and ask them to explain their future plans and proposals to the members and they will decide whether the banks should move forward with the plans proposed. These comments created a sense that government was trying to protect the big financial institution, because they were going to ask them about future and not he past on the other hand the royal commission report started with words; ‘who pays for the past?’. The banks and other financial institutions also have a reputation of lobbying politicians and financing political campaigns of their supporters in order to make sure no legislation is passed to limit their actions. Indeed, according to reports and public hearings, the government and concerned bodies failed to make sure the laws are implemented and if the financial institutions provide their services to the consumers in an ethical way.

Inconsistent application and enforcement by the federal and state entities charged with interpreting and enforcing these laws has sent the message that companies need not make ethics compliance a priority (David). In the report, the regulating bodies were also reminded about their roles and duties and how they have been fulfilling their duties and how the government failed to implement the already existing laws. The ASIC Act prohibits misleading conduct in relation to financial services. It prohibits unconscionable conduct in connection with the supply or possible supply of financial services to a person other than a listed public company. It implies terms of due care and skill, and fitness for purpose into contracts 3 ASIC Act ss 12DA, 12DB, 12DC, 12DF.4 ASIC Act ss 12CA, 12CB. Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry for the supply of financial services where the services under the contract were acquired for use or consumption in connection with a small business ASIC Act s 12ED, read with the definition of ‘small business’ in s 12BC(2). (ASIC Act 2001). The report pointed out that how ASIC has failed to detect and distinguish between small and big culprits before otherwise there wouldn’t have been any need for the commission.

Consumer Protection in Financial Market

In the end, handing the banks, insurance and super industry big fines won’t solve the issues in the long run. The motive of these industries has only been profits, by which they have already made billions of dollars in the last decade through their misconduct and unethical behaviour. In a business context, ethics are rules that govern the behaviour of all members of a profession. Failure to adhere to these rules leads to serious consequences (e.g., long- or short-term license suspension, disapproval from colleagues, reputation damage). Business ethics may thus include being reliable, having initiative, or maintaining social skills (Sullivan and Shkolnikov 2007). Commissioner Haynes agreed that the laws are very complex and needs to be simplified, instead of passing a new law to tell the financial institutions ‘what not to do’ which will make the legal process more complex. The government have already passed few legislations last year in order to comply with the report’s suggestions, white the rest will be legislated and implemented by the end of this year. In the mean time little change have been seen by people in the behaviour of banks and financial institutions they just have the finances ready in case they have to pay fines, and started compensating who they think have been wrongly charged fee for the services they never even received.

There is a need for government to set up training programs on a wider level to provide ethical training on all levels of hierarchy in all corporations, to make sure that the legislation passed to protect consumers rights are implemented upon. According to CFA; ‘More than one quarter of respondents (27%) noted that their firms have never provided ethics training to employees. In smaller firms (less than US$1 billion in assets under management (AUM)), the number was 37%, versus only 4% for firms with more than US$100 billion in AUM’ (Michaela, CFA). Some different sort of system can be implemented such as Islamic banking, their ethics and code of conduct are strictly regulated and well sought, and despite not working on interest Islamic banks were the only banks to stay stable during the 2008 financial crisis and they are very compassionate to their customers too. There is also a need of tracking on political lobbying and the relevant departments such as APRA, ASIC and anti-corruption bodies should keep a close eye on the activities of the bank officials and politicians, especially during time of election. The commission also recommended to apply banking executive accountability regime (BEAR) to superannuation, which governs who is responsible for the issues in banking sector. The government’s legislation if all passed and implemented are going to bring significant changes, as ASIC will be the only body to look after super funds and both ASIC and APRA will exercise more power in their jurisdiction and can create civil penalty for breaches of laws by directors and trustee.

Conclusion

In the end the laws are to be changed and made simple otherwise there will always be contradiction within laws which lead to big corporations and institutions escape law with the help of their fancy lawyers, and after generating billions of dollars in revenue, they get off by giving few hundred million in fines. The government in order to comply with the commissioner’s report released a document called ‘Restoring trust in Australia’s financial system’, which stated which of the recommendation they agree with and not, in which they agreed with most. The commission has also recommended to prohibit advice fee on many super accounts and deducted in some. Selling of superannuation product in an unsolicited manner will also be prohibited because that leads to people selecting products not in their interest. If the suggestions by Hayne are legislated and put into action in all financial industry through proper training and awareness, can result in a significant change over a period of time, although consumer’s perception about big corporations might take a little longer to change, but it will change eventually after continuously receiving services and help in an ethical and compassionate manner.

References

1. Final Report Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Commissioner Kenneth M Hayne, Commonwealth of Australia 2019. Volume 1
2. The Challenge of Assessing and Shaping Bank Conduct, Ethics and Culture: Insights from the Social Sciences. Connell, Matthew matthew.connell@uk.zurich.com. Winter2016/2017, Vol. 10 Issue 1, p89-98. 10p.
3. Australian Securities and Investments Commission Act 2001, Act No. 51 of 2001 as amended. https://www.legislation.gov.au/Details/C2013C00002
4. Business ethics: The key role of corporate governance. Corporate Board, Sullivan, J. D., & Shkolnikov, A. (2007). 162,1.
5. MONITOR By: JOHN COLLETT, Sydney Morning Herald, The, 03126315, Jul 29, 2006
6. Australia/New Zealand Reference Centre
7. Financial Institution Compliance with Government Ethics Laws
8. Frulla, David E.1, Rubin, Corey A.1 Community Banker. Mar2007, Vol. 16 Issue 3, p64-66. 3p.
9. CFA Societies Australia submission to the Hayne Royal Commission; Michaela Francis; Executive Director CFA society Sydney.

Abstract

Management of working capital entails the management of the components of current assets and current liabilities. Prior evidence has also endeavored to established the relationship that exists between working capital and the efficiency of companies. Therefore, this research study examined the effects of working capital management on commercial banks’ efficiency for two different countries. For this study, Zimbabwean and Turkish commercial banks were selected. The research study was carried out by utilizing audited financial statements of a sample of 10 Zimbabwean and 10 Turkish commercial banks for the period of 2009 to 2017. The efficiency was measured by looking at performance in terms of return on equity (ROE), and return on asset as another dependent variable in terms of profitability. The working capital was determined by looking at the components Current ratio, Liquidity Coverage ratio and Total Cash ratio, which were all used as independent working capital variables. Furthermore, bank size as measured by logarithm of sales and financial leverage were used as control variables. The data was studied using SPSS (version 20.0), estimation equation by both correlation analysis and pooled panel data regression models of cross-sectional and time series data were also employed for the analysis. The study further notes that Turkish banks performed better than the Zimbabwean ones with regards to liquidity coverage as they try to adhere to the Basel III reforms implemented by the Basel Committee on Banking Supervision (BCBS).

Keywords: working capital management, efficiency

1. Introduction

It is quite fundamental to be able to have an effective working capital policy for the sustainability and success of any type of business firm. It’s significant to create an optimal balance between the assets which comprise working capital with regards to risk, liquidity and profitability of the firms. Time spent by the finance managers managing the working capital components is much more than the time spent on other financial issues. The significance of working capital ascends out of the formation of the optimal balance between the assets that enable the sustainability of the business operations, in place of time which is spent by financial managers.

The optimal balance on working capital entails reducing the needs of working capital and growing the potential sales. An effective working capital management policy is aided by the increment in the free cash flow which achieves a growth potential of the business firm as much as possible. This would surge the firm value of the company and also have a positive effect on the income of the shareholders. Conventionally, the recent trend has been to increase efficiency in working capital management even though finance managers get focused on long-term capital budgets and capital structure decisions (Ganesan, 2007; Lamberson, 1995).

There isn’t a precise application of the efficiency of working capital. It could differ from sector to sector dependent upon the year. It is thus nearly impossible to establish the ratio of working capital components within the assets correspondingly for each company. It could be an indication for the working capital to be different between the firms when it is considered that the sector has its own exclusive features and economy changes from year to year. Some research studies have also been able to prove this (Filbeck & Krueger, 2005; Lamberson, 1995; Maxwell et al. 1998).

Preceding research studies have examined the working capital elements of firms in different sectors in the same country. Nevertheless; the aim of this study was to contrast whether these components, that differ depending upon sectors and years, also have the same differences in the same sector but in different countries, or not. Hence, working capital elements of commercial banks operating in two different countries were assessed. Zimbabwean and Turkish commercial banks were chosen for the study.

The following section presents literature summary and method will be mentioned afterwards. Fourth section will present the findings and the last section will be the conclusion.

2. Literature Review

Academic studies which have been carried out on working capital management can be categorized

into four different groups. First category is the cross-sectoral examination of working capital components. Second category is the investigation of the effects of working capital policies on the risks and income levels of business firms. Third category is on the analysis of the effects of working capital management on profitability. And finally, the fourth group is the determination of the indicators of working capital. While all these studies seem indistinguishable, they hold different characteristics of working capital.

The first studies on working capital indirectly examined working capital (Gupta, 1969; Gupta & Huefner, 1972; Gombola & Ketz, 1983). The common features of these studies were that they put forth the averages of cross-sectoral financial ratios. Accordingly, activity ratios, liquidity and profitability of the companies differ depending upon the sectors. Reserch studies that have directly investigated the efficiency of working capital management through financial ratios depending on the sector, have also put forward alike results (Filbeck & Krueger, 2005; Maxwell et al. 1998; Weinraub & Visscher, 1998; Hawawini et al., 1986). As a result, ratios that put forth the efficiency of working capital management also differ depending upon the sectors, just as the other ratios.

The second category of studies have evaluated the effects of working capital policies on the risks and income of the business firms. In these studies (Gardner et al. 1986; Weinraub & Visscher, 1998), it was seen that companies which favor aggressive working capital policies are more profitable but at the same time risky. Whereas companies which favor conservative policies experience a favor aggressive working capital incur losses money, contrary to these research studies. lower level of income but are less risky. Nevertheless; Nazir & Afza (2009) state that companies which

Third category of studies tried to establish how working capital components increase the performance and profitability of the business firms when they are well managed. Shin and Soenen (1998), Deloof (2003), Lazaridis & Tryfonidis (2006), Ugurlu et al. (2014), Mathuva (2009) and Dursun & Ayrıçay (2012) suggested that there is a statistically significant association between working capital management and these factors. According to these research studies, managers must sell off their inventories and collect their receivables as soon as possible should they want to increase their performance and profitability.

Fourth category of the studies investigated the indicators of the requirements of efficient working capital management. Factors that affect the requirements of working capital were determined as financial leverage (Öztürk & Demirgüneş, 2008; Chiou et al., 2006; Akinlo, 2012; Vijayalakshmi & Bansal, 2013), company size (Nazir & Afza, 2009; Mansoori & Muhammad, 2012; Akinlo, 2012) as well as return on assets (Öztürk & Demirgüneş, 2008; Ugurlu et al., 2014; Abbadi & Abbadi, 2013; Archavli, et al., 2012; Doğan & Elitaş, 2014).

3. Methodology

3.1 Research Design

This study intended to both discover and explain the effects that shifting management attention has on the efficiency of working capital and how companies continually work with WCM. There was a starting point from theoretical sources in order to understand what kind of empirical findings that were needed to answer the aim of the study. Hence, the research was both deductive and inductive. Collins et al (2007), identified three types so research designs; exploratory, descriptive and explanatory (Casual). Exploratory research is a research which is conducted to get a better comprehension of issues under studied. Collins et al specified that exploratory research is a significant tool for establishing what is going on, seek new concepts, and to evaluate and question phenomenon. An exploratory research may contain the use of many methods- interviews, observations, documentations etc, (ibid). Descriptive research attempts to describe the characteristic of population or phenomenon. Its objectives are to give out precise information of a person, event or situation (Yin, 2003). Explanatory research is utilized to identify cause-effect relationship amongst variables. A research work that seeks to bring out the relationship between two or more variables is also known as explanatory research (Yin et al, 2003). Such studies accentuate on explaining relationship. As the research objective of the study was to determine the relationship between working capital management and efficiency of commercial banks, the research assumed the explanatory research method.

3.2 Research Hypotheses

For a better appreciation of the impact of the components of working capital on Return on Equity (ROE)and on the Return on Assets (ROA), the following hypotheses were designed.

• There is a significant relationship between the CUR and the banks’ ROE.
• There is a significant relationship between LCR and the banks’ ROE.
• There is a significant relationship between TCR and the banks’ ROE.
• There is a significant relationship between CUR and the banks’ ROA.
• There is a significant relationship between LCR and the banks’ ROA.
• There is a significant relationship between TCR and the banks’ ROA.

3.3 Model Specifications

As mentioned earlier, the effects of working capital management on banks’ efficiency was estimated by using comparable quantitative models of Raheman and Nasr, (2007), Panigrahi, Anita Sharma (2013). The general formula used for the model was:

= + +

= + +

Source: Panigrahi, Anita Sharma (2013)

Where;

ROEit and ROAit = Return on Equity, and Return on Asset of the banks i at time t; i = 1, 2, 3…, 20 banks respectively.

β0 = the intercept of equation

βi = Coefficient of Xit variables

Xit = the different independent variables for working capital management of firm i at time t.

t = Time from 1, 2…, 9 years

є = error term

4. Findings

In order to establish the significant differences between Zimbabwean and Turkish commercial banks, the independent t-test was conducted. Prior to the t-test, descriptive statistics-mean, minimum, maximum and std. dev. Values were calculated. Table 1 and Table 2 show the descriptive statistics of 10 Turkish commercial banks and 10 Zimbabwean commercial banks, respectively for nine years from the period of 2009-2017.

Table 1: Descriptive Analysis – Turkish Banks

Variable

Obs.

Minimum

Maximum

Mean

Std. Deviation

ROE

90

-0.4

30.4

12.904

6.06849

ROA

90

1.02

2.9

1.7543

0.37488

CUR

90

0.1

1.3

1.0347

0.12572

LCR

90

0.21

0.67

0.4022

0.10634

TCR

90

0.85

1.25

1.1007

0.10679

LEV

90

0.1023

0.3552

0.213898

0.0560818

SIZE

90

5.0461

11.9511

8.340537

1.3548919

Valid N (listwise)

90

Source: Research Findings

Table 2: Descriptive Analysis – Zimbabwean Banks

Variable

Obs.

Minimum

Maximum

Mean

Std. Deviation

ROE

90

-7.2

28

12.9601

5.99733

ROA

90

-2.68

2.98

1.2779

1.03085

CUR

90

0.87

1.71

1.0474

0.10535

LCR

90

0.32

42

1.001

4.61322

TCR

90

1.25

1.0931

0.15965

LEV

90

0.1132

0.2971

0.201707

0.0411494

SIZE

90

5.6245

9.23

7.62818

0.8077211

Valid N (listwise)

90

Source: Research Findings

4.1 Regression Results

Firstly, a test was carried out to determine which model was more appropriate to estimate the regressions, as mentioned before. The researcher started by using the Pooled OLS model to run the regressions and analyze the F Statistic test. The Hausman test was thereafter performed to examine if those effects are regarded to be random or fixed. Lastly, the null hypothesis of the test was rejected, demonstrating that the unobservable individual effects are regarded to be fixed and, therefore, the best model was the FE. After all these tests it was then possible to carry out the multiple regression analysis with a robust sample and the adequate model.

4.2 Multiple Regression Analysis: Linear Relationship

There exists wide empirical evidence about a linear relationship between working capital management and efficiency, indicating that a decrease on the components of the working capital will have a positive effect on firms’ efficiency (Deloof, 2003; Lazaridis & Tryfonidis, 2006; García-Teruel & Martínez-Solano, 2007).

Table 3.7: Model Testing Results on Dependent Variable ROE

Parameter

Model 1

Model 2

Model 3

Model 4

R2

0.647

0.139

0.056

0.06

Adjusted R2

0.64

0.12

0.035

0.039

Regression F

83.23

7.316

2.687

2.873

Significance

0.000**

0.000**

0.049**

0.039*

Constant

21.972(0.000)**

3.287(0.001)**

7.063 (0.000)**

7.040 (0.000)**

CUR

4.346(0.000)**

-14.973 (0.000)**

LCR

-9.124(0.000)**

2.836 (0.005)**

TCR

-0.379 (0.705)

2.199 (0.030)*

LEV

2.465(0.015)

0.556 (0.579)

-0.092 (0.927)

0.109 (0.913)

SIZE

-4.776(0.000)***

-1.285 (0.201)

-2.539 (0.012)

-2.701 (0.008)**

Source: Research Findings

Results of Model 1. This model included CUR as independent variable along with two control variables and tested the hypothesis that there is no significant relationship between CUR and ROE. The regression F-value at 83.23 evidence that it is highly significant, and thus we cannot reject hypothesis H1. It can be concluded that CUR is a significant factor in predicting the banks’ ROE. The adjusted coefficient of determination in this model indicates that 64% of the variation in the ROE is explained by variations in CUR. Furthermore, the model identifies appositive relationship between CUR and banks’ performance (ROE).

Results of Model 2. There is a significant relationship between LCR and ROE. Similar to Model 1, the same variables are used, except CUR which has been replaced with LR. The estimated result for adjusted R2 at 0.120 and regression F at 7.316 shows the Model 2 is statistically significant, the hypothesis H2 is thus accepted. The regression results depict that there is a significant negative relationship between LCR and ROE.

Results of Model 3 In order to test the effect of TCR on the banks’ ROE, model 3 was constructed. The structured hypothesis that there is a significant relationship between TCR and ROE was tested through this model. The estimates of the model showed that the coefficient of TCR is negative with -0.379, but it was not statistically significant from zero. Hence, the hypothesis H3 was rejected and can be concluded that TCR is not a significant factor that should be considered in increasing banks’ ROE.

Table 3.8: Model Testing Results on Dependent Variable ROA

Parameter

Model 5

Model 6

Model 7

Model 8

R2

0.527

0.139

0.056

0.18

Adjusted R2

0.032

0.12

0.035

0.09

Regression F

59.13

7.316

2.687

3.875

Significance

0.048**

0.207**

0.649**

0.039*

Constant

18.562(0.000)**

6.385(0.001)**

9.983 (0.000)**

8.240 (0.000)**

CUR

-15.116(0.000)**

-14.973 (0.000)**

LCR

14.273(0.207)**

-3.421698

2.836 (0.005)

TCR

-10.512 (0.197)**

2.199 (0.030)

LEV

2.465(0.015)

0.556 (0.579)

-0.092 (0.927)

0.109 (0.913)*

SIZE

-4.776(0.000)***

-1.285 (0.201)

-2.539 (0.012)

-2.701 (0.008)**

Source: Research Findings

In Table 3.8 the dependent variable tested was ROA. Model 5 tested CUR as an independent variable along with the other two other control variables. This model revealed that there is a negative relationship between CUR and ROA; it means that a decrease in CUR will also lead to an increase in the ROA. At the significance level of 0.048< 0.05, it is statistically significant. The weight of evidence, therefore suggested acceptance of the hypothesis H4 and confirming that there was a significant relation between CUR and ROA of commercial banks under study.

As shown in the table, Model 6 tested the relationship between LCR, as an independent variable with the other two control variables, and ROA. It revealed a positive relation between LCR and ROA, which means that an increase in LCR will also lead to an increase in the ROA. At the significance level of 0.207< 0.05, it was statistically insignificant. The weight of evidence, therefore suggested rejecting the H5 hypothesis. This implies that change in LR does not have an impact on the ROA of the commercial banks under study.

Model 7 was constructed in order to test the impact of a change in TCR on ROA. As shown in the table, the coefficient of TCR stood at -10.512. This indicated that TCR has negative relationship with ROA implying that a decrease in TCR will also lead to an increase in the ROA. At the significance level of 0.649< 0.05, it is statistically insignificant. The weight of evidence, therefore recommended rejecting the hypothesis H6. The R2, the coefficient of multiple determinations shows the extent to which the independent variables impact the dependent variable. The (model snapshot) revealed that coefficient of multiple determinations (R2) is 0.056. Thus 5.6 % of the variations in the dependent variable are clarified by the independent variables of the model. It also showed that the selected independent variables were not the major determinants factor of return on assets (ROA) of the commercial banks.

5. Conclusion

Working capital management has a key role in the decisions of financial management of any company. The objective of working capital management is to establish an optimal balance between the elements which constitute working capital. The financial success of a business firm will be enabled through the increase in the firm value. One of the most crucial issues which increases firm value is an efficient and profitable working capital management. Firm success is closely associated with the efficient management of all the components of working capital.

In emerging countries like Turkey, the development of the banking sector plays a key role in the development of the country’s economy. Banks need to solve the financing problem, which is one of the most fundamental problems to survive in markets based on competition. Also, banks need to become greater in their efficiency by effectively managing their working capital in order to reduce the need for external financing due to scarce resources. In this context, this research’s aim was to reveal the tradeoff between WCM and the commercial banks efficiency by using the data of the banks listed on BIST Industry Index in Turkey as well as the ZSE in Harare, Zimbabwe.

In this research study, working capital elements of 10 Zimbabwean commercial banks and 10 Turkish commercial banks listed in İstanbul Stock Exchange all of which have operated 2009 and 2017 have been compared. In accordance with the results, Turkish companies seem to have enjoyed increasing and better ROA better than the Zimbabwean banks. It can be said that Turkish banks have a more efficient management mentality with regards to profitability. However; in terms of CUR, Zimbabwean banks have a slightly much more efficient management mentality than Turkish banks. This implies that Zimbabwean banks have a slight advantage in terms of being able to meet their short-term obligations as they fall due than Turkish companies.

Furthermore; Turkish banks have been able to maintain the LR on satisfactory levels much better than the Zimbabwean banks. After the 2008 global financial crisis, Turkish banks have religiously adhered to Base III reforms finalized by the Basel Committee on Banking Supervision in January 2013. So, they follow a more efficient policy than Zimbabwean banks in terms of liquidity coverage.

When we consider that Turkish companies have much more cash and equivalent assets within their total assets on average than Zimbabwean banks, it shows that Turkish companies attribute much more importance to liquidity, nonetheless. It enables flexibility to Turkish banks in case of any negative cases to make their short-term debt payments.

Return on Assets, as mentioned earlier, of Turkish banks are much more than Zimbabwean banks on average. Return on equity of the banks in both countries didn’t seem to differ notably on average. However; this study did not analyze whether the profitability of the banks arises out of working capital or not. A different analysis is necessary for this. In this study, the average differences between the profitability of the companies from only two countries were analyzed.

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Islamic Finance is a financial set up that had a big role in the growth and infrastructure systems for the region such as enabling the funding for the Shard and the London Gateway (Parmley, 2020) It operates in accordance with the Islamic law which is known as the Sharia which insinuates that it is sharia-compliant (Jamaldeen, 2012). It is like conventional banks in the sense that Islamic Finance contains an approach of banking and undertaking financial transactions (What Is Islamic Finance? – dummies, 2020). This essay will discuss how Islamic Finance does not perceive wealth as a commodity and has no value of its own but enables the purchase of services and goods in accordance with Islamic economics and the difference among conventional finance. This essay will also evaluate the working of a Sukuk product and will analyse the advantages and disadvantages in comparison to a conventional bond. Additionally, this essay will evaluate and analyse the growth of the first Islamic UK bank as well as discussing the attainments and the challenges that were faced will also be raised.

The time value of money is significant as it is based on receiving income now rather than later this may have an influence on business finance (Wilkinson, 2020) From an Islamic perspective the concept of the time value of money is totally different in contrast to the conventional aspect. The reason being is that income can be seen as a medium of exchange and not as a store of value (Hamza and Jedidia, 2017) which implies that for it to work effectively then it must be of basic value and that it should not be leased out or brought at a cost higher than its monetary value by anybody (Medium of Exchange Definition, 2020) This is because from an Islamic perspective the amount of income an individual has or makes must be pure so when it does get invested the income is paid by a fixed share of the investment return (Hamza and Jedidia, 2017) In addition to this, (Iqbal and Mirakhor,2006) suggests that income is seen as possible capital which insinuates that for it to officially become capital then it must be involved in participating in a specific activity. This demonstrates that in terms of Islamic economics the return of investment should not be associated with Riba.

From an Islamic perspective, the most important purpose of Islamic economics will have to be the banning of Riba which suggests that money is not viewed as a commodity as money has no fundamental value. This suggests that money cannot always be used to fulfill the basic needs of individuals which indicates that income does not always make a person happy and does not always have significance. According to (Today’s Beautiful Hadith is about Being Content, 2020) The prophet Muhammad peace be upon him believed that ‘’Happiness is due to him who is guided to Islam and possesses provision that suffices him for his day and remains content (Tirmidhi)’’ This insinuates that for an individual to be fully content and pleased in life then they must be practicing deen.

Whereas, from a conventional finance aspect capital is a commodity that is used to acquire many supplies. This may be due to believing that money is eternal and that it is long-lasting which implies that it can be used to buy a lot of things as well as being profitable due to it being high in demand which insinuates that it is used regularly by individuals. (Nurrachmi,2012) It also suggests that being great in value indicates that It is also limited which insinuates that as a reward for capital interest is given which may be due to the time value of money playing a big factor in charging interest on capital (Habib, n.d.) According to (Nurrachmi,2012) income is a type of good alongside store of value and medium of exchange which can be sold and leased out at a price higher than its monetary value.

According to (Godlewski, Turk-Ariss and Weill, 2013) Sukuks are Islamic financial certificates that are dispensed in agreement with the principles of the Sharia and are organised in a way that generates profits which implies that it has different obligations in comparison to a conventional bond (Mohd Saad, Haniff and Ali, 2019) both Sukuk and conventional bonds are supplied to lenders and are secure alternative in contrast to equities. The difference being is that Sukuks include asset ownership in which a share of the underlying asset is signified and must be sharia-compliant in contrast to conventional bonds which are debt agreements in which a share of debt is signified and is used to finance a business that practices authorisation . (dummies, 2020) The rating of both Sukuk and conventional bonds are both associated with price. An example of this could be that an increase in rating could lead to an increased price (Habib, n.d.)

Sukuk’s are a way of lending income to an issuer for a certain amount of time and are dissimilar from other existing debt instruments in the sense that it has the qualities of both debt and equity (Ho, 2020). When a shareholder invests in this type of bond then the income is invested into an asset which allows investors to benefit from the revenue made from the asset. In which the agreed amount of margin from the profit made is given to the shareholder. Individuals who invest in Sukuk receive an evidentiary ownership certificate which enables them to obtain daily payments which may be based on the sum that they have invested and are entitles to get back the sum of investment after a certain period. (Ho, 2020) Shareholders that invest in Sukuks are given dividends on profit sharing deals which are a type of financial aspect that is reliant on the internal information of the investors instead of fixed interest costs in contrast to conventional bonds. This implies that Sukuks are vulnerable to issues to do with the information in comparison to conventional bonds.

There are two types of Sukuk which are known as asset-based and asset-backed Sukuk. According to (White & Case LLP, 2020) asset-based Sukuk are extremely popular which means that the focus is not on the asset but is more reliant on the funding. Whereas, for asset-backed Sukuk’s to thrive then individuals should focus more on looking at the cash flow aspect. In terms of differences, the payment aspect for asset-based arises from the cash flow of the debtor. In comparison to asset-backed in which the expenses come from the income made from the asset.in terms of documenting the asset for asset-based, the asset stays on the balance sheet of the debtor in contrast to asset back which doesn’t Hidayat, S. (2013). The one that is more sharia-compliant will have to be asset-backed in contrast to asset-based Sukuk which behaves more like a conventional bond.

One of the advantages of Sukuk is that if the worth of the asset surges then the worth of the ownership of the asset supported by the Sukuk also rises in comparison to conventional bonds who do not have this trademark (Five Important Differences Between Sukuk and Traditional Bonds – Sukuk | Home of the Global Sukuk Industry, 2020). However, both Sukuk and conventional bonds will have to be the liquidity aspect. This is because both are used within the secondary market which means that many businesses such as insurance companies and banks ply this to their advantage. An example of this how they may do this is by using the income that they may have leftover and using it to purchase Sukuk or conventional bonds (Habib, n.d.)

Another advantage of both will have to be bond ratings which allow individuals to choose which bond to invest in based on consistency and quality. Therefore, an increased rating insinuates how widespread a bond is (Habib, n.d.) Sukuks are securities that are secured in assets such as ownership in an investment or project compared to conventional bonds which are debt instruments. Looking at this from a Sukuk perspective securities are super favored and are likely to be chosen compared to fixed deposits due to the effective rates of profit that are offered. According to (Weighing the Advantages and Risks of Sukuk | Al Bawaba, 2020) Sukuk securities average return is five percent in comparison to fixed payments of the same currency of 1.75 percent but the disadvantage of this could be that there may be some risks such as credit risk.

Moreover, another advantage of both will have to be the investment prospect which may lead to a higher chance of expansion of the market. This is beneficial for investors who may choose to invest in using a certain volume of income (Habib, n.d.). This may attract individuals such as investors internationally who may have an interest in this sector which would be beneficial as it would lead to an increase in sales as well as the possibility of branching out towards other financial markets. An example of this could be working towards more extensive investment markets that could potentially provide a reputational advantage and may have a benefit due to the increase in the certainty that is offered regarding interest expenses as individuals would have a better idea in knowing that they will receive payments on the specific date given. This may also be of some influence in developing on the financial aspect side as individuals may also be given dividend expenses. According to (Habib, n.d.) Sukuk may be used for equitable distribution of income in comparison to a conventional bond. The reason being is that many shareholders may benefit from the profit generated from the underlying asset.

According to (Nawaz, 2018) Al Rayan Bank is a commercial bank that opened its first branch with the support of the Financial Services Authority which allowed them to introduce it in London in the year 2004. In the year 2006 online banking came into surface and in the year 2018, Al Rayan Bank was the first to introduce a Sukuk in a western country. There are over 13,000 corporations in the UK which insinuate that there are more job prospects available for individuals in need of a job ( Al Rayan Bank, 2020).

In terms of growth, AL Rayan Bank is growing at a steady rate as it has an increased amount of Islamic Finance providers which means that Islamic Finance is super popular in the UK in comparison to countries such as the USA. This may be due to having a lot of skilled staff who have relevant knowledge due to the high number of courses available within this field which implies that these employees may be of value for the business due to being trained effectively (News, 2020). This has also had a positive impact on the profit of Al Rayan Bank as they own over 5 billion worth of assets which may be due to their high number of customers who have invested throughout the years many of whom are Muslims and non-Muslims who have invested in AL Rayan Bank (Leap of faith, 2020). According to (History of Al Rayan Bank, 2020) in terms of achievements Al Rayan Bank had achieved in gaining many awards such as in the year 2017 they won the title of being the best Islamic bank in the UK.

However, Al Rayan Bank also faced many challenges along the way. The reason being is that due to the prohibition of interest Al Rayan bank were not able to borrow from the bank of England or other banks in the UK instead they would be dependent on deposits which they split with depositors which may have had an impact on the operation of Al Rayan Bank. Another challenge that Al Rayan Bank may have faced is competition amongst other banks this is because the financial industry is super competitive so when they opened the bank they may have been less known in comparison to other banks such as Lloyds (King, Schaverien and Papantoniou, 2020). In addition to this, AL Rayan Bank may have faced many regulatory changes such as the elimination of double tax and expansion of tax reliefs on Islamic loans as well as effectively applying the Financial Conduct Authority which helps in safeguarding customers as well as ensuring that Islamic finance is being followed efficiently which will help in maintaining the success of Al Rayan Bank (Financial Conduct Authority, 2020) This may have had an impact on AL Rayan Bank as it may have encouraged them to grow and successfully influence the performance of the company.

To encapsulate, this essay has demonstrated the theoretical background on the underlying concepts of Islamic Finance which has been increasing a lot over time as well as evaluating the working of a Sukuk product and analysing the advantages and disadvantages in comparison to a conventional bond. Many investors opt for corporate bonds as well as Sukuks as a safer investment prospect during times of economic instability. I have also identified that the Al Rayan bank faced many achievements as well as challenges to become a success. However, opportunities such as investing more in digital banking would be better in terms of security.