A survey on performance measurement and management system in the banking sector in Bangladesh

Abstract

In the global competitive world, performance measurement and management system (PMMS) have become a widely discussed issue. Performance measurement is the process of quantifying the efficiency and effectiveness of action (Neely et al., 1995). The traditional financial or accounting based performance management system has been criticized by many authors for being short term oriented, considering past performance, being non consistent with current business environment and so on. In order to overcome the shortcomings of using traditional performance measurement system, Kaplan and Norton (1992, 1996) have introduced the balanced scorecard offering a superior combination of non-financial and financial performance measures along four perspectives - financial, customers, internal business processes, and learning and growth - to measure firm performance. In Bangladesh, banking industry is one of the largest service sectors in the economy and this sector is continuously growing in terms of size and competition. This study is aimed to develop a comprehensive set of performance measurement variables or Key Performance Indicators (KPIs) from Balanced Scorecard (BSC) perspective those will serve as a benchmark or basis for performance measurement and management system in the banking industry in Bangladesh. In this context, attempt has been taken to find out the performance measurement variables or KPIs those are currently used by the banking sector of Bangladesh. Again, it is also analyzed which perspective of Balanced Scorecard (BSC) has the significant impact on the performance of banks. This study also examines the overall Balanced Scorecard’s impact on the performance of banks. The population for the study is the entire banking industry of Bangladesh. Here, stratified random sampling technique has been used to select the 26 banks as sample of the study. In this study, survey method is used to collect data. The respondents of this study are the top managers and responsible senior officers of each sample bank. Data is collected through self administered questionnaire. A five point Likert scale ranging from 1 (never) to 5 (always) is used to assess the extent to which a bank uses the performance measurement variables. At first, a descriptive statistical analysis is made which shows that— return on investment (ROI), return on equity (ROE), net interest margin, cash flow, net operating income, capital adequacy, liquidity ratio, non interest income, profitability of each branch, revenue growth and EPS growth— are wide used performance measurement variables those range mostly from “Frequently” to “Always” in terms of responses. Next, factor analysis is carried out to indentify the significant Key Performance Indicators (KPIs) or performance measurement variables those are used by the banking sector in Bangladesh. From the factor analysis, fifteen factors are extracted explaining a total of 73.84% of the total variance. On the other hand, regression analysis reveals that the performance of banks is significantly and positively associated with the learning & growth measures usage of Balanced Scorecard (BSC). It is also found that the overall Balanced Scorecard usage has significant and positive impact on the performance of banks in Bangladesh. I have suggested a Balanced Scorecard framework for performance measurement & management for the banking sector in Bangladesh. Moreover, I have also prescribed a comprehensive guideline for performance measurement and management system for the banking sector in Bangladesh. At last, I believe that the contribution of this research is very much relevant, significant and pragmatic for the banking sector in Bangladesh.