A REVIEW OF THE MEASURES OF PERFORMANCE OF COMMERCIAL BANKS AND ITS DETERMINANTS

Abstract

Researchers and practitioners have looked beyond conventional profitability ratios
to measure performance of commercial banks and thereby presents a plethora of
variables to measure performance and its determinants. A clear understanding
of these variables and the context of using them are essential for formulating
forward looking action plans and strategic insights because commercial banks
are considered as the life blood of any economy. As intermediaries, commercial
banks facilitate flow of funds from the surplus to deficit units as such to enhance
productive activities in the economy. Through a thorough investigation of existing
literature on performance analysis of commercial banks this research thrives
to build a comprehensive framework to measure bank performance and its
determinants. It is evident that besides common profitability ratios, operational
and intermediation efficiency and CAMEL model based financial ratios are used to
measure bank performance and there are firm specific, industry specific and macro
level determinants of performance. To name a few, capital adequacy, asset quality,
management efficiency, bank size, sector concentration, GDP growth rate, inflation
and others are the key determinants. Practitioners, policy makers and future
researchers will find the comprehensive frame work for measuring performance of
commercial banks useful for pursuing their respective endeavors.