Financial Performance Analysis in Selective Banks

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Introduction
The word ‘Performance is derived from the word ‘parfourmen’, which means ‘to do’, ‘to carry out’ or ‘to render’. It refers the act of performing; execution, accomplishment, fulfillment, etc. In border sense, performance refers to the accomplishment of a given task measured against preset standards of accuracy, completeness, cost, and speed. In other words, it refers to the degree to which an achievement is being or has been accomplished.
Financial performance refers to the act of performing financial activity. In broader sense, financial performance refers to the degree to which financial objectives being or has been accomplished. It is the process of measuring the results of a firm's policies and operations in monetary terms. It is used to measure firm's overall financial health over a given period of time and can also be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.
Financial sector is imperative for economic growth and industrialization via channeling funds, providing proficient financial system, sociable investor’s treatment, and optimal utilization of resources (Raza, 2011). Financial management which is well designed and implemented properly is likely to contribute in the firm’s value and increase profits of the firm (Padachi, 2006). Issue in financial management is to accomplish fancied exchange off between liquidity, dissolvability and profitability (Lazaridis et al., 2007). According to (Rajesh and Ramana Reddy, 2011) Management of working capital in terms of liquidity and profitability management is essential for sound financial recital as it has a direct impact on profitability of the company. The ultimate goal of profitability can be achieved by the efficient use of resources and it can be by increasing the shareholders or own wealth. The company which uses its resources efficiently can achieve its goal easily (Panwal, 2009). And it can be attained by the financial performance analysis. Financial performance means firm's overall financial health over a given period of time. Financial performance analysis is the process of determining the operating and financial characteristics of a firm from accounting and financial statements. The goal of such analysis is to determine the efficiency and performance of firm’s management, as reflected in the financial records and reports. The analyst attempts to measure the firm’s liquidity, profitability and other indicators that the business is conducted in a rational and normal way; ensuring enough returns to the shareholders to maintain at least its market value. banking sector in any economy is playing out the real part in such matters. Banking sector assumes a noteworthy part in directing assets to businesses and contributing towards economic and financial development and dependability. A settled banking sector division can ingest major financial crisis in the economy and can give a plat structure to reinforcing the financial arrangement of the country (Aburime, 2009). For the purpose of bank’s financial analysis there should be a proper framework by developing the performance indicators. The analytical framework normally used in this process is the financial statements. Financial statements can be the starting point of bank financial performance. Banks’ performance monitoring, analysis and control needs special analysis in respect to their operation and performance results from the viewpoint of different audiences, like investors/owners, regulators, customers/clients, and management themselves. The problem of banking and financial system soundness has become more important in all countries over the recent years. The financial sector, and especially the banking system, is vulnerable to systemic crises which has led to the creation of costly safety nets, as depositor insurance schemes with well-known moral hazard problem. It is argued that there is increasing evidence that banks are “black boxes” due to the week transparency and banks’ unwillingness to disclose information.
Literature Review
Financial Performance Analysis is a fundamental for the triumph of a company. Financial Performance Analysis is an examination of the feasibility, solidity and fertility of a business, sub-business or mission.
Financial Analysis is a process of synthesis and summation of financial and operative data with a view to getting an insight into the operative activities of a business enterprise.
(Wessel, 1961) suggested that by establishing the strategic relationship between the components of balance sheet and profit and loss account and other operative data, it unveils the meaning and importance of various items in financial statement of a business concern. Financial performance Analysis comprises of comparisons for the same organization over periods of time and/or examinations of distinctive organizations either in the same industry or in various ventures.
According to (Athanasoglou, 2008) Researchers in banking and finance have shown that bank performance is identified by internal and external factors. The internal factors relate to banks’ characteristics and external factors are described as the monetary and legitimate environment.
According to (Tarawneh, 2006), he found that the banks having high aggregate capital, deposits, credits, or aggregate resources does not generally imply that the bank has more advantageous profitability performance. The operational effectiveness and asset management, in adding to the bank size, positively influence the financial performance of these banks. In the light of his observational study he concluded that the operational proficiency and asset management, in addition to the bank size, firmly and emphatically affected financial performance of the banks.
(Ahmed, 2011) in his research of the financial performance of seven Jordanian commercial banks utilized ROA (Return On Asset) as a measure of banks' performance and the bank size, asset management and operational effectiveness as three independent variables influencing ROA (Return on Assets). He presumed that there is a strong negative relationship among st ROA and bank size and with operational efficiency, while, discover positive correlation among st ROA and asset management ratio.
According to (Khizer et.al, 2011) in his study about profitability indicators of banks in Pakistan for the time of 2006-2009 find that productivity is specifically and positively influenced by operating proficiency, asset management ratios, and size when utilizing ROA as profitability indicators. The relationship between profitability and different indicators is distinctive, when utilizing ROE (Return on Equity) as profitability indicators. ROE is positively related with asset management and negative affiliation is find with size and working productivity.
(Rizvi, 2001) led a study to break down the profitability of banking sector in Pakistan through 1993-1998 utilizing Data Envelopment Analysis. As indicated by his efficiency records the Pakistani banking sector is performing poor because of technological relapse and problematic blends of administrations and items. This ought to be overcome by giving value added services and increase customer base.
(Elizabeth and Elliot, 2004) explained that all financial measure, for example, ROA, Capital Adequacy interest margin is ascertained positively with score of client administration quality. Numerous researchers have been concentrating on risk and asset management in banking sector.
(Tektas and Gunay, 2005) argued that in order to increase the profits of the banks and lower and controlling various risks it is obligatory for asset and liability management.
According to (Berger & Humphrey, 1997) the main reason behind doing the financial performance analysis of a banks, companies is to separate the banks which are doing well and which are not doing well. They further explained that, “evaluating the performance of financial institution can inform government policy by assessing the effects of deregulation, mergers and market structure on efficiency”.
According G. Foster
“it is the process of identifying the financial strength and weakness of the firm by properly establishing relationship between the item in the balance sheet and the profit and loss account. Financial analysis can be under taken by management of the firms, or by parties outside the firm, viz., owners, creditors, investors and others”.
(Sangmi and Nazir, 2010) evaluated the financial performance of two banks operating in North India that are Punjab National Bank, Jamu and Kashmir Bank according to their role and participation on the financial condition. They applied Camel model on these two banks by evaluating the annual reports of the banks 2001-2005 and found that both banks were financially sound and suitable as far as their capital adequacy, asset quality, management capability and liquidity is concerned.
(Jha and Hui, 2012) tried to find out the factors affecting the performance of Nepalese Commercial Banks by using various camel ratios such as return on asset (ROA), return on equity (ROE), capital adequacy ratio (CAR) etc. As Public sector banks have higher total assets compared to joint venture or domestic private banks, thus ROA was found higher whereas overall performance of public sector was unsound because ROE and CAR of joint venture and private banks was found superior. The financial performance of public sector banks is being eroded by other factors such as poor management, high overhead cost, political intervention, low quality of collateral etc.
References
Tarawneh, M, (2006) , “a comparison of financial performance in the banking sector: some evidence from Omani commercial banks”,
International Research Journal of Finance and Economics, vol. 3, pp. 101-112.

Wesse l, Robert, H (1961), Principles of Financial Analysis, Ma cmila nN.Y. P. 29.

Athanasoglou, P., S. Brissimis and M. Delis (2008), 'Bank-specific, industry-specific and macroeconomic determinants of bank profitability', Journal of International Financial Markets, Institutions, and Money, 18, 121-36.

Ahmed A. A., (2011), “Financial Performance Evaluation of Some Selected Jordanian Commercial Banks”, International Research Journal of Finance and Economics. Issue 68.

Khizer, A. Muhammad A. & Hafiz A., (2011), “Bank-Specific and Macroeconomic Indicators of Profitability - Empirical Evidence from the Commercial Banks of Pakistan”, International Journal of Business and Social Science, Vol. 2 No, 2011.

Rizvi, S. F. A, (2001), “Post-liberalization Efficiency and Productivity of the Banking Sector in Pakistan”. The Pakistan Development Review 40:4, 605–632.

Elizabeth D., Greg Elliot (2004),” Efficiency, customer service and financial performance among Australian financial institutions”, International Journal of Bank marketing, Vol.22, No.5, pp. 319-342.

Arzu Tektas, and Gokhan Gunay, (2005),” Asset and liability management in financial crisis”, The Journal of Risk Finance, Vol. 6, No.2, pp.135-149.

Berger, A.N. and Humphrey, D.B. (1997). Efficiency of financial institutions: international survey and directions for future research. European Journal of Operational Research, Vol 98, pp.175-212.

Foster, G. Financial Statement Analysis, prentice hall, 1986, P 2-7. 

Sangmi M. (2010), “Analyzing Financial Performance of Commercial Banks in India: Application of Camel Model”, Pak. J. Commerce. Soc. SCI, Vol.4, No.1 accessed from www.jespk.net/publicat ions/28.pdf on 23-Sept-2014.

Hui, X. (2012), “A Comparison of Financial Performance of Commercial Banks: A Case Study of Nepal”, African Journal of Business Management, ISSN: 1993-8233, Vol. 6, No. 25 accessed from http://www.academia.edu/5057138/A_Comparison_of_Financial_Performance_in_the_Banking_Sector_Some_Evidence_from_Omani_Commercial_Banks on 20-Sept-2014.

Padachi, K., 2006. Trends in working capital management and its impact on firm’s performance: An analysis of mauritian small manufacturing firms. Int. Rev. Bus. Res., 2(2): 45-56.

Lazaridis, I., 2007. Relationship between working capital working capital management and profitability of listed companies in the athens stock exchange. J. Finan. Manage. Anal., 19(1): 26-35.

Rajesh, M. and N.R.V. Ramana Reddy, 2011. Impact of working capital management on firms’ profitability. Global J. Finan. Manage., 3(1): 151-158.

Panwala, M., 2009. Dimensions of liquidity management- A case study of the Surat Textile’s Traders Cooperative Bank Ltd., J. Account. Res., 2(1): 69-78.\

Aburime, U. T. (2009). Impact of Political Affiliation on Bank Profitability in Nigeria. African Journal of Accounting, Economics, Finance and Banking Research, 4 (4), 61-75.

Raza, A. Farhan, M. Akram, M., (2011) “A Comparison of Financial Performance in Investment Banking Sector in Pakistan”, International Journal of Business and Social Science Vol. 2 No. 9 [Special Issue - May 2011]
Location: Lahore, Pakistan

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