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BRANCH PERFORMANCE Slide 2 Branch Types Rural Branches Urban Branches Large Branches Medium Branches Small Branches Slide 3 Branch Banking Branch banking leads to more stable banking systems by enabling banks to better diversify their assets and widen their depositor base. Branch banking induces competition. Competition forces marginally profitable banks to change either through merger or voluntary liquidation. When these weaker banks close, the overall stability of banking system improves through consolidation. Branch banking stabilizes banking systems by reducing their vulnerability to local economic shocks Slide 4 Economic Factors Affecting Banking Activity Average employment growth Average population growth Average per capita income Average number of branches Average population per branch Slide 5 Benchmarking Efficiency of Bank Branches Operational efficiency model Quality efficiency model Profitability efficiency model Slide 6 Operational Efficiency Model Operational efficiency model identifies branches that are group leaders and serve as yardsticks to guide the improvement of performance of inefficient branches Managerial performance Clerical performance Management of computer terminals Working space effectiveness Number of current personal accounts Number of savings accounts Number of foreign currency current accounts Number of credit applications Output time Slide 7 Operational Efficiency of a Branch Slide 8 Quality Efficiency Model Service quality as perceived by branch personnel Service quality as perceived by branch customers Slide 9 Perceived Dimensions of Service Quality Reliability - Ability to perform the services accurately and dependably. Responsiveness Willingness to help customers and provide prompt service Assurance Knowledge and courtesy of employees and their ability to convey trust and confidence Empathy Caring, individualized attention provided to customers Tangibles Appearance of physical facilities, personnel and communication. Slide 10 Objective and Perceived Measures of Quality Slide 11 Profitability Efficiency Model Consumable Resources Clerical personnel Supervisor personnel Computer terminals Working space Revenue Generating Resources Advances Deposits Commissions Number of credit application accounts Number of current personal accounts Number of savings accounts Number of foreign currency accounts Number of inter-branch transactions Slide 12 Profitability Efficiency Model Slide 13 Service Quality and Profit Performance Slide 14 Drivers of Branch Performance Profit and growth are stimulated primarily by customer loyalty Loyalty is a direct result of customer satisfaction Satisfaction is largely influenced by the value of services provided to customers Value is created by satisfied, loyal and productive employees; Employee satisfaction results primarily from high-quality support services and policies that enable employees to deliver results to customers Slide 15 Data Envelopment Analysis Data from a single bank in a small and tightly regulated economy Data Envelopment Analysis (DEA) Used for measuring efficiency Several decision making units are mapped Mapping of inputs with respect to outputs Uses linear programming formulations to fit the model Branch units on the data envelopment by the model are efficient Inefficient units can be projected onto the efficient frontier either by reducing their inputs or increasing their outputs Virtual units that are close to the real ones but are on the efficient frontier (for the inefficient units) Slide 16 DEA Example InputsBranch ABranch BBranch C Managerial personnel111 Clerical personnel312 Computer terminals212 Work space (Sq. m)20050300 Current accounts300100400 Savings account800200500 Credit applications15050200 Slide 17 Branch Quality OutputsBranch ABranch BBranch C Personal (Scores)707560 Computer (usage %)403045 Working spare (comfort score)908060 Credit application process time (days)652 Service quality6058.7561.25 Slide 18 Branch Profitability OutputsBranch ABranch BBranch C Revenue generation (%)201040 Deposit mobilization per employee700800500 Fee income (%)121418 Interbranch transactions (number)400030007000 Slide 19 Operational Efficiency and Profitability Slide 20 Quality and Operational Efficiency Slide 21 Service Quality and Profitability Slide 22 Relative Efficiency