It contains the various methods of evaluation of banking performance

1. Prepared By:
Neha Agrawal
Department of Management Studies,
Pondicherry University

2.  Essential for managing the finance of the country
 Recognition of management problems on time can
help in protection of citizen and whole system as
banks are central to any economy
 To protect the individual against risk running banks
due to speculative motives related with capital
market

3.  Capital Adequacy :
 ratio of capital to risk-weighted assets (CRAR)
 a sound capital base strengthens confidence of depositors
 Asset Quality :
 ratio of non-performing loans to total loans (GNPA).
 An indicative of the quality of credit decisions made by bankers.
 Higher GNPA is indicative of poor credit decision-making.
 Management :
 ratio of non-interest expenditures to total assets (MGNT)
 This variable, which includes a variety of expenses, such as payroll, workers
compensation and training investment, reflects the management policy
stance.
 Earnings :
 measured as the return on asset ratio.
 Liquidity :
 Cash maintained by the banks and balances with central bank, to total asset
ratio (LQD)
 banks with a larger volume of liquid assets are perceived safe, since these
assets would allow banks to meet unexpected withdrawals.

4. Rating Symbol Rating symbol indicates
A Bank is sound in every respect
B Bank is fundamentally sound but with moderate
weaknesses
C financial, operational or compliance weaknesses that
give cause for supervisory concern
D serious or immoderate finance, operational and
managerial weaknesses that could
impair future viability
E critical financial weaknesses and there is high
possibility of failure in the near future.

5.  DEA is a method for measuring the relative efficiencies of
a set of comparable units such as banks, bank branches,
schools, hospitals and similar institutions whose common
feature is the ability for their activities to be described as
the conversion of certain inputs into various forms of
output.
 On the basis of relation between output and input ratio

6.  Inputs
 the book value of equipment
 labour (measured in man/hour per annum)
 material costs (all costs except labour and capital)
 Outputs
 the total deposits
 total loans and total guarantees
 End product of this method application
 separation of banks (branches) into the efficient ones (the
level of their efficiency is 1) and the inefficient ones
(whose efficiency is less than 1).

7.  The DEA analysis results
 what needs to be done in order for an inefficient
bank to increase its efficiency, or
 to what extent and with what expenses this goal is
obtainable.
 These results are directly followed by the useful
bank management information

8.  This method is based on the problem
decomposition into a hierarchy structure which
consists of the elements such as:
 the goal
 the criteria (sub-criteria)
 and the alternatives
 Very useful in solving complex problems

11. The method application can be explained in four steps:
 The hierarchy model of the decision problem is developed in such a way
that the goal is positioned at the top, with criteria and sub-criteria on
lower levels and finally alternatives at the bottom of the model.
 On each hierarchy structure level the pairwise comparisons should be
done by all possible pairs of the elements of this level.The decision
maker’s preferences are expressed by verbally described intensities and
the corresponding numeric values on 1-3-5-7-9 scale (Saaty, 1980).
 On the basis of the pairwise comparisons relative significance (weights)
of elements of the hierarchy structure (criteria, sub-criteria and
alternatives) are calculated, which are eventually synthesised into an
overall alternatives priority list.
 The sensitivity analysis is carried out.

12. • Product and service innovation
• New products and services
revenue
• The new non-performing loan
rate and the rate of increase
• EconomicValueAdded Bank
profits
• The per capital profit
• Non-interest income
• Net interest income
• Employee Satisfaction
• Staff violation rate
• The operational capacity of
standard rate
• Professional Development
Program
• Staff training satisfaction
• Market share
• target number of obtaining
customers
• Customer attention
• the growth rate of customer of
complaint
• Innovative services
Customer
Sustainab
le
competiti
on
Business
process
Financial

13.  EconomicValue Added, or EVA, is a financial measurement
tool that bankers can use to measure the financial
performance of their bank.
 EVA determines if a business is earning more than its true
cost of capital.
 It is mainly used in the U.S. banking industry since 1994
 EVA is an estimate of the true economic profit (not
accounting profit)
 EVA is highly accurate because it includes the cost of debt
financing and equity financing.

15. It may be summarized in “The Four M’s”: Management System, Motivation,
Mindset, Measurement (Marusak 2007).
 ManagementSystem
 Simply measuring EVA can give managers a better focus on performance.
 Provides a foundation for a comprehensive financial management system.
 Motivation
 Incentive plans to make managers think like owners because they are paid like owners.
 EVA Bonus Plan.
 Mindset
 Changes corporate culture.
 EVA system provides a common language for employees across all corporate functions.
 Facilitates decentralized decision making.
 Measurement
 Most accurate measure of corporate performance over any given period.
 Translates accounting profits into economic reality.