The rationale of the increasing importance of bank management
Now, I am describing the rationale of increasing the importance of bank management. The only way to achieve a handsome amount of profit compared to similar kinds of organizations is to establish skilled & efficient management in any organization. The bank is a profit-oriented organization; therefore its management procedure is more challenging as the regulatory system always is time to control bank management. The following diagram shows how the bank management becomes more challenging over time.
So, the above diagram shows that day by day, bank management becomes more complicated due to the effect of these three determinants. A small description of these three factors are given below:
1) Changing regulation for banks:
At the end of the 3rd decade of the 20th century, thousands of banks around the world failed due to the economic recession called the Great Depression. Due to bank failure, millions of depositors suffered from a great problem, as they didn’t get back their deposited money. From this time, to protect the interest of depositors, the deposit insurance scheme was made mandatory for banks. And from this time, the regulation for banks began to multiply from various angles. Previously, to receive a registration certificate or certificate of commencement of business and to submit the financial statements were considered to be sufficient for the controlling agencies of banks. It’s an important part of increasing the importance of bank management.
It is a normal phenomenon to change banking procedures from time to time in the same country or in different countries according to the public benefits. Bank regulatory authorities are more careful to prevent bank failure, to ensure the safety of the fund of depositors, and to ensure loan distribution for all. Moreover, the everyday government in any country directs rules & regulations for keeping the currency stable and modernizing the bank management in order to protect the interest of the depositors.
Some of the techniques followed by the bank regulatory authorities to control the activities of commercial banks are-
- Direction for the right price of bank services.
- Introduction of deposit insurance.
- Direction for capital adequacy.
- Direction for approval & non-approval of bank loan operation.
- Recruitment of directors, and direction regarding recruitment & directing their duties and responsibilities.
- Direction for adequate liquidity.
- Loan supervision, review, and examination.
- Direction for adequate reserve, etc.
Day by day bank management becomes more challenging by introducing rules & regulations by bank regulatory authorities. A country’s development mostly depends on its financial activities. The bank is an important part of finance. So, to become more progressive, a country must need the rationale of increasing the importance of bank management.
2) Increasing competition due to changing technological development:
Technological development in the bank sector is a part of increasing the importance of bank management. A number of served clients and quality & dimensions of services are the basis of competition. The bank, which provides better service with high quality, is capable of being successful in competition. Two banks jointly create new services that provide the customers with a sustainable competitive advantage. Why the new benefit or service that the bank offers is unique and different from that of the other organizations requires the commercial banks to participate in the multidimensional competitive environment.
The client of one bank may go to another bank of the same locality just because of better service. Even, in one family, husband-wife or son – the father does not follow the superiors and become the customer of the bank that provides better services speedy, precise and accurate. It encourages households to create savings.
Case study of a bank employee
Let’s discuss a case study of a bank employee in Dhaka who knows that a service holder lives in Azimpur. He has no savings account in any bank. The employee leaves the house of that service holder that day with the information. Seven days later, the employee goes to the home of that service holder when the person stayed in the office.
The employee introduced himself to the person’s wife. The employee asked the lady whether that house was their own house. The lady replied no, then the question arose, what was the source of house rent. The lady replied that her husband’s office paid the house rent. Then the banker asked if the office would pay house rent after retirement from a job. The answer was automatically no, then the question arose where they would live after retirement. The lady answered that they would go back to her father-in-law’s house. The employee tried to make her understand many problems such as living standards in Dhaka, they might not adjust in another place, communication problem, and education problem of their children, etc. The lady became concerned about these problems. The employee advised the lady to get the loan from the bank.
However, the lady agreed with the proposal of the employee. The employee arranged a system, which divides monthly expenses into four parts and a portion meant four thousand takas, which would be kept in a bank account. This arrangement called for that the deposited amount along with the interest after two years would be used to get a loan that would be used to purchase a flat worth of Tk. 11 Lac from “Property Development”. The lady agreed with the proposal and started depositing Tk. 5000 per month by opening an account in her name. The banker kept his promise and after two years, he helped the family to own a flat. Now think the rationale of increasing the importance of bank management.
This story proved the fact that bank management is becoming more and more challenging with the increase in comparison. The banker persuaded the lady to deposit savings and become owner of a house not because he was kind to her but because he was assigned to fulfill deposit and loan targets resulting from serious competition. So, in order to withstand competition bank management needs to innovative and challenging.
The bank, which can attract more clients, can create clients repeatedly. This technological environment absorbs more investment and new training. So, the management of the bank creates a new strategy of banking services adjusted in the competitive banking business.
3) Changing international relationship:
In the international banking business, the bank faces an extensive amount of legislation in the event of a new problem. International relations, global or bilateral, create more competition in the banking business. Other factors, such as changes in international trade and commerce, laws of fund transfer, change in social and cultural factors establish a new operational management system that challenges the banking business. It’s also a part increasing the importance of bank management.
In this era of modern science, solution of competitive environment and development of international relations among banks, the management of banks follows a different strategy to merge banks in the international banking business. All these factors stated make bank management more complex and challenging. After all, it can be said that the rationale of increasing the importance of bank management is important in any kind of development.
Basis of All Round management in Bank Sector
To achieve the specific goals, managers of banks must be efficient. That is the accuracy of decision making must be ensured in order to reach the goals by focusing on the past, present, and future. This requires appropriate knowledge and personality. Appropriate knowledge is enhanced in the light of relevant education, training, and experience. That’s why philosopher Socrates emphasizes the gathering of knowledge- “Know thyself”. But, according to Einstein, only knowledge is not sufficient for success rather imaginative capacity is also highly required. A bank manager must focus on earning appropriate profit for the shareholders. He/she cannot overlook the interest of the stakeholders. Efficient bank managers take every decision in the context of present and future potentiality. It must be remembered that there are no alternatives for achieving the bank’s success without efficient and quality service.
It must be mentioned that businessmen are not the only customers for banks in society. Other service-related people are either depositors or borrowers or both. On the other hand, there are different types of business customers. Some are producers, some are sellers, and some are consumers. These businessmen are the owners of big, medium or small business houses. The bank manager should keep good relations with every kind of customer to perform a transaction for success. One successful bank manager must keep a positive relationship with every customer. In order to build stable good relation, the bank manager should know some useful information about his/her client; if not all but something of everything.