Answer to Question #160185 in Management for Ps

Question #160185

1.discuss the significance of profitability management in banking industry ? (please give 8 to 9 points for significance , Related to bank management ) profitability is managed in banks ? (please answer in points)

Expert's answer


Is process within a bank helps to identify, measure, control, and monitor risk-adjusted returns. Banks constitute one of the most important groups of financial intermediaries. As financial intermediaries, banks play a crucial role in most economies' functioning; they channel funds from savers to spenders. Studies have attempted to identify the significant determinants of bank profitability. Profitability is essential in understanding the causes of threatening situations. 

Significance of profitability management in banking industry

  • Transparent business and financial model across its portfolio of companies/products to create the roadmap for improvement.,
  • Robust framework and planning cell in the office that translates growth, pricing, profit, and capital improvement initiatives into plans and budgets.
  • Periodic report and review mechanism that is;
  • a)distinguishes between routine operational plans and strategic growth plans. b) effectively tracks budget variance and converts them into actionable items.
  • Robust measurement framework that deploys return on assets improvement targets through the management structure of the organization.
  • A SMART (Specific, Measurable, Achievable, Relevant, and Timely) KPI framework and hierarchy for each business.
  • Linkage of return on assets targets lower-level financial goals (lag indicators) and operational parameters (lead indicators) and map them to the organizational hierarchy.
  • The improved linkage between return on assets improvement and the compensation and reward structure.
  • Activity-based costing. 

Managing of profitability in banks

 It can be appraised at the micro and macro levels of the economy. At the micro-level, profit is the essential prerequisite of a competitive banking institution and the cheapest funds source. It is not merely a result but also a necessity for successful banking in a period of growing competition in financial markets. Hence, a bank's management's primary aim is to achieve a profit, as the essential requirement for conducting any business.

Banks with diverse products and services experience high profitability, and that bank with a high value of assets accrue more profits. Banks that have embraced creativity and innovation influence their profitability, and IT's application ease the process and procedure of banking.

On bank size, the study recommended that banks open new branches on the untapped potential areas for the banking services, such as by opening more departments and ATM centers as such will enhance their profitability capacity.

Due to globalization and technological innovation in the modern environment, banks should not be exempted from this innovation since it is one of the significant profitability drivers within organizations.

Employees should be motivated in their work, both intrinsic and extrinsic, to enhance their working attitude for the organization's benefit, particularly by increasing its profitability.

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