Financial Performance Analysis of Banks

This assignment delves into the determinants of bank profitability. It examines various factors that contribute to a bank's financial performance, such as working capital management, risk management practices, and the influence of macroeconomic conditions. The analysis draws upon research articles and data to understand how these elements impact profitability within the banking sector.

How the organisation’s
working capital over a twenty
years’ period and its impact on
financial performance

Contents
ACKNOWLEDGEMENT...............................................................................................................1
EXECUTIVE SUMMARY.............................................................................................................3
CHAPTER 1: INTRODUCTION....................................................................................................4
Background of the Study:.......................................................................................................4
Research aim and objectives:.................................................................................................4
Research Question:.................................................................................................................4
Rational of the study...............................................................................................................4
Significance of study:.............................................................................................................5
Dissertation structure..............................................................................................................5
CHAPTER 2: LITERATURE REVEIW.........................................................................................6
Introduction............................................................................................................................6
Theme 1: Working capital is being controlled in banking sector...........................................6
Theme 2: Working capital used for managing functional activities:.....................................7
Theme 3: Use of available resources for managing working capital in the banking sector...7
Impacts on financial performance in banking sector..............................................................8
CHAPTER 3: RESEARCH METHODOLOGIES........................................................................10
Overview:.............................................................................................................................10
Sources of data types ...........................................................................................................10
Research approach and philosophy:.....................................................................................11
Data collection......................................................................................................................11
Data Analysis........................................................................................................................14
Reliability and validity.........................................................................................................14
Limitations of research approach:........................................................................................15
Ethical issues........................................................................................................................15
Regression analysis..............................................................................................................16
Research hypothesis:............................................................................................................16
CHAPTER 4: DATA ANALYSIS................................................................................................18
Chapter 5: Recommendations and Conclusion..............................................................................34
REFERENCES..............................................................................................................................35

ACKNOWLEDGEMENT
I am graceful to my teacher, friends and companions who provided me suggestion and
assistance in for completing this project. For fulfilling my dissertation on “ working capital over
the twenty years' period and its impact on the financial performance”. I am thankful to my tutor
who renders me the guidance for making dissertation in an effective manner. In the end, I am
thankful to all who have directly or indirectly assisted me for fulfilling of my dissertation.
1

ABSTRACT
The main aim behind of research to carry out such dissertation in order to investigate
components which simply affect on the profitability of the European Banks. In this, for facing
research questions secondary data sources have implemented by the researcher. On the basis of
these report, by assessing books, journals and scholarly articles related to the factors which
impact on bank's profitability secondary data which have collected. In addition to this, annual
reports of various European banks likewise been assessed in order to collect the data and achieve
thee research objectives. Apart from that, statistical tools like descriptive assessment, correlation
and regression are performed by the researcher in order to drive a desirable solution.
2

EXECUTIVE SUMMARY
Working capital is the cash amount which is associated to the organisation's routine
operations. There are mainly three essential components which are required to be focused in
order to free up cash otherwise tied up to attain higher cash benefits opportunities, apart from
that, determining in order to assess and managing inefficiencies in processes and manufactures.
More particularly economic turmoil, organisations rely on their cash reserves by way of security.
This is henceforth crucial for the organisation in order to have a strong working capital
management in order to free up the cash from their working capital and enhance their cash
reserves. This would assist them to remain resilient towards unavoidable circumstances like
exchange rate fluctuations, rising interest rates and reducing in sales. If the working capital
position is strong then in that case, Bank could perform better and generate more sales by using
available resources in a most effective manner.
3

CHAPTER 1: INTRODUCTION
Background of the Study:
This is the research on the firm’s working capital over a twenty-year period and its
impact on the financial performance. Under this research, banking corporation’s working capital
is analysed in an effective manner. By analysing the working capital, various stakeholders can
assess the performance of the organisation in an effective manner (Marr, 2012). This report is
made on the working capital on the banking sector in UK and how it controlled in an effective
manner and it's effect on its performance of the banking sector. Researcher needs to make certain
tools that can be used by the firm for making business decisions in order to frame strategy.
Research aim and objectives:
Aim: “To evaluate the working capital management over the last 20 years and its impact on the
financial performance of banks”.
Objectives:
a) To assess whether capital management has any influence on the solvency of banks.
b) To address the causes of bank suffering or reasons why there are distress in banking
nowadays.
c) To address whether working capital management has any influence on the profitability of
the bank.
d) To how bank manager handle management of the bank.
e) To find out how appropriate is the working capital of the bank.
Research Question:
a). How is working capital being controlled in Banking sector?
b). Is there enough working capital for functional activities in the bank?
c). Do management of bank make an adequate use of available working capital.
Rational of the study
The main aim behind convening current investigating is to elaborating the components
which have influence on the working capital over the last 20 years and its impact on the financial
performance in an effective manner. This is adopted as key issues as after the period of financial
crisis, diverse efforts were formed by the banking companies for enhancement of the monetary
4

aspects. Henceforth, via quantitative investigation, such research reflects micro/ macro factors
which affects the working capital of the banking companies.
Significance of study:
There are various advantages of working capital management of banking sector. Some of
them are mentioned hereunder:
1. Research project would reflect an opportunity for understanding and improving flexible
and competitive tools of working capital management.
2. This helps as data base of information on the contemporary practices in assessment.
3. The research would enhance to know about region of areas risk reduction, solvency
management.
4. This would assist the banking sector management and form a strong use of its working
capital decision making procedures.
Dissertation structure
The current research and its result are beneficial for the performance of Banking sector
which helps in providing deep investigation to them about the issues which impact on the profit
margin. In the introductory section, background, aim and objectives which have been covered by
the scholar. As per second chapter, brief thesis is made on the scholar via forming evaluation of
books and journals. In the third chapter, researcher determines the research strategies which are
adequate for the concerned issues which is being assessed. Chapter 4 of dissertation reflects
findings and assist the same with the secondary data set. In chapter 5, researcher conclude
findings and renders assistance for advance improvements.
5

CHAPTER 2: LITERATURE REVEIW
Introduction
Management of working capital consists of handling of current assets and current
liabilities along with which two key goals, which is to enhanced the banks growth and liquidity
position during the time. Management of working capital is crucially important to an
organisation which is due with growth and financial stability. This lower the opportunity costs
which linked with investing in stock and account receivables and also from managing cash.
Apparently, organisations is requires to have close monitoring on each components of working
capital (Ozkan, Cakan and Kayacan, 2017).
These are the components which are used by the management accountant in order to
optimise the uses of various available resources.
Theme 1: Working capital is being controlled in banking sector
According to Smets, (2014), the effect of working capital management on the overall
relevance of banking industries is very wide as they are assist in controlling valuable information
of various transactions. It has been noticed that management of working capital aims to control
balance between every components those are affecting performance of European banks. In
addition to this, working capital management is concerned to the soundness and administration
of cash flows during the time. They are required to determine effect of creditor, cash and stock
management on financial performance of banking industry.
According to Arko, (2012), they observed that management of working capital refers to
the social control of current assets and current liabilities for handling an optimum levels of
diverse factors those are associated with banking business. Various tools that are helpful for
management to manage working capital and its three key components cash, receivables and
inventories in appropriate manner.
As DUALE, (2016), advocates for bank to concentrate optimise growth and incorporates
optimum utilization of cash resources available to them. While during the time, it is considering
economies to cash holding without impairing entire solvency needs of the banking sector. For
operating financial base of banks are permanently related to working capital that must need to be
funded by equity capital or other long term sources. While on the other hand, temporary working
capital is required to the finance through short term sources of finance (Islam and et.al., 2017). It
6

is requiring to satisfied with total working capital management of the bank, but oversee scope for
the further enhancement (Mackey and Gass, 2015).
Theme 2: Working capital used for managing functional activities:
According to”Oyugi, (2014)”, this has been analysed that negative and positive aspects of
working capital management of banking sector in UK. The data has been taken for 20 years and
then the analysed it in an effective manner. However, this can be rightly said that the industry is
growing a faster rate and it need to make strategy through which the overall banking sector could
gain sustainably in order to attain future aims and objectives.
Miles, Yang and Marcheggiano, (2013), stress out the working capital management gives
its effects on liquidity position in banking perspective. By implementing, pearson's correlation,
and regression analysis. They identified that there is a adverse relationship between the working
capital variables and their impacts on banking sectors. In addition to this, they found positive
connection between size of the company and its future sustainability and also between the debt
and capital formulation during next coming times.
Sigmund Gunter and Krenn, (2017) argued that effects of various working capital
management tools in the sector which are: Inventory turnover, cash conversion cycle, average
collection period can help company's to perform upcoming growth during the time. Like- ROE,
ROA and EPS. Via multiple regression assessment, the researcher would recover that APP, ITO
and CCC shows an adverse impact on ROA but ACP has the positive impact on ROA. Their
emergence shows that the financial performance of banking industry.
McNeil, Frey and Embrechts, (2015), it has been found that there is a negative
connection between earnings and cash conversion cycle, inventory turnover in days, average
collection period. While on the other way, this can be said that average payment period has
positive effects on the financial performance among the various banks in European nations
(Panneerselvam, 2014). On the other hand, working capital may lead to reduced sales and
consequently profits of the organisation because of their short and long term obligations. This
might put into a condition where organisation will unable to repay its debts (Abuzayed, 2012).
Theme 3: Use of available resources for managing working capital in the banking sector
These outcomes are demonstrated in company’s profitability, liquidity or solvency.
Assessing financial performance of a bank enables top level managers to judge the emergence of
business strategies and tasks in objective monetary terms. Usually, ratios are applied in order to
7

implemented for identifying financial performance of a company. A financial management is
forecasted in order to contribute positively for forming of a company’s value. the main aim of
bank to determine effective aspects that could make impacts by way of efficient use of resources.
This is related to the maximization of shareholders or entrepreneurs wealth. Bank financial
performance assessed is traditionally relied upon the assessment of financial ratios like return on
equity, net interest margin, capital asset ratio, growth rate of total revenue, cost ratio.
As per Adu, (2013), renders a summary of working capital and its determinants.
According to the author, working capital management elaborates the amount and composition of
existing assets and how to finance them. There is a need to have a management could have ratio
analysis of the working capital which is a means of cross checking upon the efficiency with
which working capital is being implemented in the banking sector.
McKinnon, (2010), this is observing that the liquidity performance is low as compared to
the ideal ratios of banks. This has been suggested that for handling working capital in an
effective manner, operating and other diverse budgets must be formed by the management on a
short term and long term basis. This is further recommended, that these are the people concerned
that the they highly affect the process of production activities so that an optimum utilization of
working capital can be achieved.
Impacts on financial performance in banking sector
It has been seen that there are various financial implications which are affecting
performance of banking sectors. As banks is one of the major institution those are responsible for
providing more credit support to various small and large business organisation. Interest rate is
one of the crucial indicators of financial policy which has huge impacts on financial sector. The
primary objective of enlightened financial aspects which impacts on banking sectors stability and
their overall performance through analysing casual relationship (Angeloni and Faia, 2013).
These are being determine by using their ROA (return on assets) and ROE(return on
equity) ratios during that particular time. This particular research shall be focuses on in-depth
study of all impacts which is being seen on banking sectors through evaluating transmission over
last 20 years by using interest rate as primary tools. Through using correlation analysis through
following ordinary least square regression which is being carries as empirical evaluation of
study. Firm overall size is considered as effective control variables for making effective research
as firms total size those are having important impact on financial performance of banks.
8

Any outcomes collected out of study will reveal that interest rate would be taken as
primary measure for financial policies which is having important inverse relationship on firms
financial performance measured that is being analyse by using ROA and ROE. Financial
statement for banks would indicate various analytical issues than statements for production and
service companies. In order to make positive analysis, banks needs to make financial evaluation
which needs as a distinct method that recognise a bank's unique risk factors. In normal kind of
situations, it has been assume as financial risk would be helpful in making loans at interest rates
which would be differ from all those rate which is being deposited into the banks. It has been
very shorter maturities which would very minimum as loans and make adjustments as per the
current market rate which is much faster than loans (Sharma and Wadhwa, 2017).
Research on the banks financial performance:
Oyugi, (2014), examined that the commercial bank runs between 1997-2002 by
deploying profit efficiency, return on assets (ROA), interest income and non- interest income to
evaluate performance of banks. The outcomes reflect from 1997 and 1999 as small banks were
highly profit efficient than large banks.
According to ONYANGO, (2016), this research is assessed the inter-temporal
performance of commercial banks, this research was relie on three sorts of bank size: large,
medium and small banks in the United Kingdom for the period of 5 years from 2000 to 2005. By
implementing two main measure performance- profits and quality of loans are needed to be
analysed effectively. The research reflects that, there is a crucial difference between small and
medium and large kind of banks in their ROA. However, this can be said that the mid-sized
banks are having higher ROA than the small banks.
9

CHAPTER 3: RESEARCH METHODOLOGIES
Overview:
Research design is an arrangement of various conditions that are implied upon data which
is collected and analysed in a manner that fulfils purpose of research. It acts as a supporting tool
for any research problem as it includes measurements, aggregation and analysis of report.
Research design can be descriptive, experimental, qualitative, quantitative, etc. This research is
conducted using quantitative research. Reason behind this approach is it provide statistical data
which help researcher in comparative study (McNeil, Frey and Embrechts, 2015). Also, it
includes mathematical opinion that can be further used for point inference and hypothesis testing.
This approach will help in delivering proper results for research procedure.
Sources of data types
Data collection is a technique of collecting and analysing information from all the
available relevant sources in order to find a solution of a giving research problem, test the
hypothesis and to evaluate the probable outcome. Data collection methods can be divided into
following two types: -
 Primary Data: Primary data is the raw information that is obtained directly from the first
hand source i.e. is from end respondents by means of observations, interviews,
questionnaire etc. The study employed quantitative research approach based on primary
data through the method of questionnaire (Smets, 2014). A questionnaire is structured
form which can be either written or printed, consisting a sequential list of questions that
are designed to gather information related to a particular topic or subject. The basic
objectives of questionnaire are: -Constructing the right type of questions relevant to the
topic that can help in gathering specific and desired information from the respondents. It
should be short and simple and its physical appearance should be attractive enough to
motivates the respondents to fill it with authentic information (Abuzayed, 2012). Under
this research, questionnaire is used as this is the qualitative research method. Survey and
interviews are the common tools used in entire kinds of business. Consequently, survey is
convened by taking all the banks which are operating in UK as a respondents.
 Secondary Data: -Secondary data is that data that has already been gathered by some
other individual other than the researcher himself. Secondary data is generally cheaper to
10

obtain as compared to primary data and mainly used for literature review in research
methodology. Sources of secondary data can be internal or external both. Example of
inner sources of secondary data can be balance sheet, P&L account, inventory records
etc. of a company while external source can be government sources, journals,
universities.
Apart from the data collection method, there are two methods which are used by the
researcher for investigating the data. There are two kinds of research investigating methods.
Which are used by the researcher for investigating the data.
 Quantitative research method: This is the method which is used by the researcher to
investigate the report in an effective manner. Although, this is the perfect method that can
be used when the data gathering is of numerical nature. In this case, quantitative research
method is used by the researcher in order to gain the sustainability.
 Qualitative research method: This can be said that this is the data investigating
techniques which are used by the researcher for improving the banking conditions in an
effective manner. Although, this is the right tool that can be used by the banks in order to
render an effective strategies. There are so many tools which can be used by the
researcher in order to gather the information (Ding, Guariglia and Knight, 2013). The
data which are gathered, are required to be investigated in order to render an effective
strategy. However, this can be said that the investigation is done of simple data.
Research approach and philosophy:
There are basically two kinds of research approaches for convening of research. These
are the inductive and deductive research approaches. Deductive approach is convened in the
manner where existing theories and models are elaborated. According to this approach,
hypothesis are emerged from the available theories and models are tested numerically for getting
the hypotheses. On the other hand, inductive research approach means the way through which
issues from general point of view. In this research, perceptions of banks in the UK have been
assessed via inductive research approach.
Data collection
There are only two kinds of data collection tools which can be used by the organisation in
order to have strategy in an effective manner. There are highly two sources which could be
implemented for the aim of data collection like primary and secondary. Under this research,
11

primary sources are used for the one under which the researcher consider for gathering of data
which set according to objectives like as survey, observation, focus, group etc. On the basis of
this, secondary data sources covers books, journals and articles which has been collected and
published by the researcher. Under this report, for addressing research questions secondary data
sources which have been implemented by the researcher (ONYANGO, 2016). Under this
research, secondary data resources are used in order to know about the overall situations in an
effective manner. On relying of such aspect, by assessing books, journals, and other articles
which relates to the factors that could affect the bank effectiveness.
Under this, secondary data has been gathered. This can be considering as one of the most
significant procedure in which the interpretation of accumulated data is being conducted. As the
report will use qualitative methods for gathering the required information linked with the topic,
this analysis will be more focused the qualitative information for which this research will
undertake various methods I,e. Questionnaire as the tools of data accumulation. Through this,
proper analysis of data is maintained in systematic manner. In this report, for evaluating research
questions, secondary data sources which have been used by the researcher. By using this, for
addressing research questions secondary data sources have been used by the researcher. By way
such report, by assessing books, journals and articles related to the factors which affect the
bank's working capital, secondary data which have been assessed.
Here, various ratios are provided hereunder which shows the viability of the entire
industry.
Banks Current assets Current liabilities Working Capital
HSBC 1011983000 2029664000 -1017681000
Lloyds Banking Group 148001000 555880000 -407879000
The Royal Bank of Scotland
Group plc 344959000 644631000 -299672000
Barclays 1119107.1 724911.9 394195.2
Standard Chartered PLC 245059100 455424000 -210364900
Statistics
Banks Working Capital
N Valid 0 5
12

Missing 5 0
Mean -387040540.96
Std. Error of Mean 171332257.441
Median -299672000.00
Mode -1017681000a
Std. Deviation 383110574.376
Variance 146773712198705000.000
Skewness -1.382
Std. Error of Skewness .913
Kurtosis 2.545
Std. Error of Kurtosis 2.000
Range 1018075195
Minimum -1017681000
Maximum 394195
a. Multiple modes exist. The smallest value is shown
Banks
Frequency Percent
Missing System 5 100.0
Working Capital
Frequency Percent
Valid
Percent
Cumulative
Percent
Valid -
101768100
0
1 20.0 20.0 20.0
-
407879000
1 20.0 20.0 40.0
-
299672000
1 20.0 20.0 60.0
- 1 20.0 20.0 80.0
13

210364900
394195 1 20.0 20.0 100.0
Total 5 100.0 100.0
The above mentioned table shows that banking sector ratios have strong growth and
contributed to make economy stronger. However, this can be said that the researcher needs to
interpret the data effectively so that he could fix that for making the business decisions
effectively. various stakeholder would use this data in order to make certain strategy in an
effective manner.
Ratio analysis:
On the basis of various ratios which is being calculated from above are information are
indicating their percentage of growth and performance in banking sectors. Some of them are
analyse underneath:
Dividend yield ratio: On the basis of information that is being indicated through using
total percentage of market price of a share as banking company. This is used to measure total
amount of credit dividends which is being apportioned to common shareholders which is
comparative to market value per share. The ratio is being showing a total of 2.63 %.
Price earning ratio: This would be total market price of shares in comparison of total
earning of a company. As per the mentioned outcomes which is indicating as 0.31%. In this price
earnings ratio is being indicates about a total amount which an investors can invest in their
projects.
ROCE: It is known as profitability ratios which is use to measure efficiency of a
company that can provide valuable form of gains from its capital employed through using net
operating income. A total of 26 % is calculated from the entire information provided by the
company.
Data Analysis
This simply to the systematic procedures which is implemented to used to assess and
find out an effective information from the data set. Various tools and techniques changes as per
the type of investigation convened. In addition to this, SPSS tools offers maximum solution at
the time of outcome which is relied upon the quantitative data set. By referring to these kinds of
aspects, various statistical techniques which have been considered by the researcher. Therefore,
14

by convening correlation analysis, researcher has been reflected various factors which affect the
profit margin of the banking organisation.
Reliability and validity
For assessing reliability, justifiability and latest articles which are used by the researcher
which published after 2007. The rational behind considering such aspect is the articles which
renders with updated and particular information relating the concerned issues. In addition to this,
in order to improve the validity of investigation, no modifications are required to be done in the
numeric facts and figures. This is in turn stating that no biasses which has been adopted to get
the forecasted level of outcome or success.
Correlation Matrix:
ROE Deposit ratio size capital ratio loan ratio
ROE 1 0 -0.11 -0.01 0.103
Deposit
ratio 0 1 -0.041 0.78 0.75
size -0.107 -0.05 1 0.06 -0.01
capital ratio -0.01 0.79 0.07 1 0.74
loan ratio 0.1 0.73 -0.01 0.780 1
Limitations of research approach:
Limitation of research would be relied on working capital management, it’s inappropriate
and excess implementations in banking industry. Different things which could be that the
limitations are time and financial constraints, which did not enable for higher exhaustive
research. Every study has its own limitations such as time, areas of inspection, efforts, economic
conditions, etc. Some limitations present in this research were as follows:
 Research study is based on primary data which is collected form questionnaire that means
accuracy of such data can be uncertain.
 Result will be limited to selected sector only.
 Reliability of data received can be can lose accuracy.
 Every respondent may not fully respond to research study.
15

It is important to critically analyse every aspect before putting in efforts for research
study. By doing so limitations can be minimised. Researcher can make a checklist of all the
issues that he encounters while conducting research in order to resolve them completely.
Ethical issues
Ethical aspects which are the one which improves the significance of the research to a
great extent. On the basis of these aspect, various references list has been sum up by the
researcher. This in turn reflected that findings of other researchers have been paraphrase instead
of copying them. In addition to this, no biased judgements have been adopted which reflects that
the research and its findings are most appropriate.
Regression analysis
There are various advantages of working capital management of banking sector. Some of
them are mentioned hereunder:
 Research project would reflect an opportunity for understanding and improving flexible
and competitive tools of working capital management.
 This helps as data base of information on the contemporary practices in assessment.
 The research would enhance to know about region of areas risk reduction, solvency
management.
Research hypothesis:
Under this research hypotheses, there are two kinds of hypothesis. One is null hypothesis
and other one is alternative hypothesis. Null hypothesis is represented by H0. While, on the other
hand, alternative Hypothesis is represented by H1.
Hypothesis: 1
Null hypothesis (H0): There is no any significance difference in total mean value of
ROE and size of banking sectors.
Alternative hypothesis:(H1): There is significance difference in mean value of ROE and
size.
Hypothesis 2
Null Hypothesis (H0): There is no any significance difference in mean value of ROE and
deposit ratios in banking sectors.
16

Alternative hypothesis (H1): There is significance difference in mean value of ROE and
deposit ratios in banks.
Hypothesis :3
Null Hypothesis (H0): There is no significance difference in mean value of ROE and
Capital ratios.
Alternative hypothesis (H1): There is a significance difference in mean value of ROE
and capital ratios of European banks.
Regression table:
Regression Statistics
Multiple R 0.232
R Square 0.046
Adjusted R Square 0.02
Standard Error 0.108
Observations 180
ANOVA
df SS MS F Significance F
Regression 4 0.0878 0.023 1.835 0.12
Residual 175 1.862 0.012
Total 179 1.949
Coefficients Standard Error t Stat P-value
Intercept 0.077 0.01 7.554 3.28E-012
Deposit ratio -0.01 0.015 -0.854 0.38
size 0 0 -1.207 0.229
capital ratio -0.098 0.093 -1.057 0.292
loan ratio 0.025 0.012 2.334 0.021
On the basis of collected outcomes from the above are explain underneath:
Hypothesis 1: P=0.229 (in this case hypothesis is true).
17

Alternative hypothesis (H1): There is no any significance difference in mean value of
ROE and size of banking units.
Hypothesis 2: P= 0.384 ( H0: is true)
Alternative hypothesis (H1): There is no any significance difference in mean value of
ROE and deposit ratio of banking sectors.
18

CHAPTER 4: DATA ANALYSIS
Questionnaire
Name
Q1. Does shortage of working capital effects the financial performance of Banks?
1. Yes
2. No
Q2. Do you think banks have enough working capital resources?
 Yes
 No
Q3. What measure you recommend which helps in controlling of working capital in Banking
sector?
 Monitoring cash flow
 Management of Accounts receivable and payable
 Inventory management
Q4. Do you think effective management of working capital helps in improvement of
profitability of bank?
 Yes
 No
Q5. Are you satisfied with the loan offers which are provided by Banking sector?
 Highly satisfied
 Satisfactory
 Dissatisfied
Q6. What are major benefits of effective management of working capital?
 Effective execution of banking operations
 Improved cash flow and capital funding
 Availability of Cash throughout
Q7. What should be the Minimum Working Capital Ratio for the Firm ?
 1:1
 2:1
19

 2:3
Q8. What are the main sources to Fund Working Capital of the firm ?
 Short term Credit from other Banks
 Short Term Deposits from Customers
 Internal Profits
Q9. What are the different ways which can be adopted by bank to enhance its working capital ?
 Replacement of Short term debt with long term debt
 Reliance on Internal Profit Generation
 Issue of Shares
Q10. Whether most of the working capital should be Funded by using Debt by the Bank?
 Yes
 No
Q11. What is the importance of working capital for bank?
 It is essential to know the short term liquidity of Bank
 Helps in ascertaining solvency of Bank
Q12. Does Short term Deposits a part of Bank's Current Liabilities?
 Yes
 No
Q13. How many Days of Working capital cycle is common for Banking Business?
 40 Days
 60 Days
 120 Days
Q14. Who Regulates the Working Capital Requirement of Banks ?
 Government
 Other Commercial Banks
 Central Bank
Q15. Does a Weak Working Capital Ratio could raise questions on overall efficiency of Bank ?
 Yes
 No
20

Q1. Does shortage of working capital effects
the financial performance of Banks?
Frequency
3. Yes 90
4. No 30
Interpretation: It has been interpreted from the above graph that, 90 respondents are in
the favour of research question. They have the opinion that due to the lack of working capital
there is large number of difficulties are faced by the bank in performance of their day to day
functions. But 30 respondents are feel that it doesn't have much effect on operational efficiency.
Q2. Do you think banks have enough working
capital resources?
Frequency
 Yes 74
 No 46
21

Interpretation: It has been observed from the above graph that, 74 banking respondents
which are selected from total population have the opinion that the banks which are working in
UK have adequate amount of working capital. But 46 respondents have the opinion that they face
difficulties regarding effective working arrangements.
Q3. What measure you recommend which
helps in controlling of working capital in
Banking sector?
Frequency
 Monitoring cash flow 45
 Management of Accounts receivable
and payable
56
 Inventory management 19
22

Interpretation: It is observed that, 45 respondents said management of cash flow helps
in effective controlling of working capital requirements. 56 respondents have the opinion that
management of AR and AP. 19 respondents said that inventory management helps in controlling
of working capital requirements. While this is also said that there are 45 respondents thinks that
they can effectively control working capital in an effective manner.
Q4. Do you think effective management of
working capital helps in improvement of
profitability of bank?
Frequency
 Yes 88
 No 32
23

Interpretation: It is observed that, 88 respondents are in favour of that management of working
capital helps in improvement of profitability. But 32 respondents emphasis that it doesn't have
any impact on profits.
Q5. Are you satisfied with the loan offers
which are provided by Banking sector?
Frequency
 Highly satisfied 46
 Satisfactory 60
 Dissatisfied 14
24

Interpretation: It is observed that, 46 respondents are satisfied with loan offers. 60
respondents are having the opinion that such offers are satisfactory and 14 are not satisfied with
offers.
Q6. What are major benefits of effective
management of working capital?
Frequency
 Effective execution of banking
operations
75
 Improved cash flow and capital funding 45
Interpretation: It is observed that, 75 respondents are in favour that working capital
helps in effective performance of day to day functions. But 45 respondents said it helps in
improvement of cash flow. This is rightly observed that the benefits of the effective operations
helps the organisation for benefit an efficient management of the working capital.
Q7. What should be the Minimum Working
Capital Ratio for the Firm ?
Frequency
 01:01:00 30
 02:01:00 70
 02:03:00 20
25

01:01:00
02:01:00
02:03:00
1
2
3
Interpretation : From the above graph it is quite evident that a minimum WCR ratio of
2:1 should be maintained by company. 70 respondent favoured and said 2:1 is the right ratio for a
bank, Whereas 30 said 1:1 ratio of WCR is enough and 20 people said that ratio of 2:3 should be
there. It is also regulatory requirements for banks to maintain a specific Working Capital Ratio,
which is laid down by the Central Bank of the country.
26

Q8. What are the main sources to Fund Working Capital of the firm ?
 Short term Credit from other Banks 30
 Short Term Deposits from Customers 70
 Internal Profits 20
30
70
20
Short term Credit from other
Banks
Short Term Deposits from
Customers
Internal Profits
Interpretation : When asked from respondents that what can be regarded as the main
sources of working capital for a bank, 30 people said Short term credit, while 70 people replied
in favour of deposits from customers and 20 people said that internal profits should be a major
source to fund working capital. Banks should ensure that the funds which are being raised by

them for the purpose of Working capital are long term in nature so that there is no risk of short
term cash crunch.
Q9. What are the different ways which can be adopted by bank to
enhance its working capital ?
 Replacement of Short term debt with long term debt 60
 Reliance on Internal Profit Generation 30
 Issue of Shares 30
60
30
30
Replacement of Short term
debt with long term debt
Reliance on Internal Profit
Generation
Issue of Shares
Interpretation: When questions were asked from respondent what are the ways available
for bank to enhance its working capital, 60 people said replacement of short term debt with long
term would mean higher working capital for company. 30 people said that reliance on internal
profit is good and 30 more respondent said that issue of shares can be a good way to enhance
working capital. There are some other ways also which can be used by banks for the purpose of
enhancement of working capital.

Q10. Whether most of the working capital should be Funded from
using Debt by the Bank?
 Yes 40
 No 80
40
80
Yes
No
Interpretation: When asked from respondent that whether it is feasible that working
capital of bank should be funded by mostly debt, 40 people said yes it is the right way, however
80 people said that working capital should not be funded by debt and bank should look for some
other ways to fund its working capital. If a bank would use higher debt to fund its working
capital then it will not be able to meet the statutory requirements for minimum working capital
ratio.

Q11. What is the importance of working capital for bank?
 It is essential to know the short term liquidity of Bank 40
 Helps in ascertaining solvency of Bank 80
40
80
It is essential to know the
short term liquidity of Bank
Helps in ascertaining solvency
of Bank
Interpretation: The above Graph clearly suggest that when asked from respondent that why
working capital is required for bank and why it is ascertained, around 40 out of 120 respondents
said that it is calculated for the purpose of knowing the short term liquidity of the bank.
However, 80 out of 20 people said that it helps in ascertaining the solvency of Bank in general.
Working capital is an essential part of any bank and proper maintenance of working capital is
quite essential for the reputation of bank.
Q12. Does Short term Deposits a part of Bank's Current Liabilities?
 Yes 80
 No 40

80
40
Yes
No
Interpretation : When asked from respondents that does short term deposit is a
component of current liabilities of company, 80 people replied in favour of it and said yes it
forms part of current liability of company. However only 40 people said that short term deposits
does not form part of current liabilities of the bank. When a proper analysis of current liabilities
of the bank is done, it is evaluated that there are various other components of current liabilities of
the bank, these are short term deposits, short term loans from other banks etc.
Q13. How many Days of Working capital cycle is common for
Banking Business?
 40 Days 10

 60 Days 20
 120 Days 90
10
20
90
40 Days
60 Days
120 Days
Interpretation: The above data depicts that when asked from respondents regarding the
minimum no. of days of working capital cycle that a bank can have, 10 people said that a 40 days
of working capital cycle is enough, 20 people said 60 days is enough and 90 people said 120
days working capital cycle is a minimum for a commercial bank.
Q14. Who Regulates the Working Capital Requirement of Banks ?
 Government 10
 Other Commercial Banks 30
 Central Bank 80

10
30
80
Government
Other Commercial Banks
Central Bank
Interpretation : After the analysis of above data, it is quite clear that whe asked from
respondents about the regulator of banks who issues guidelines regarding working capital of
banks, 10 respondents said that Government regulates such guidelines, 30 people said that other
commercial banks regulates this, and 80 people said that Central bank is the main regulator
Banks and they are the one who issues guidelines for working capital.
Q15. Does a Weak Working Capital Ratio could raise questions on
overall efficiency of Bank ?
 Yes 30
 No 90

30
90
Yes
No
Interpretation : When asked from respondent that whether a working capital ratio could
tell about the overall efficiency of bank, 30 people said that yes it can raise questions on overall
efficiency of bank, however majority of respondent that is 90 people said that this ratio does not
depicts anything about the bank.
There are various ways of increasing banks overall exposure related with working capital
that has been referred for insolvency proceedings in European banks. The above depicted tables
indicate that negative and lower correlation exist among ROE and total size of banks deposit and
capital ratios. In accordance with that relationships which are affecting the performance of banks
in related with working capital. Thus, taking into account every such aspects it can be provide
profitability to banks from the size or level of operations. Findings can be clearly helpful to
support with secondary data for the purpose of evaluation that indicate financial strength and
ability of banks capital managements. The impacts can only be resolve in case they are able to
manager their resources in more effective manner.

Chapter 5: Recommendations and Conclusion
On the basis of above mentioned analysis, there are various recommendations which have
been proposed working to the banking sector for enhancing the overall working performance of
the company. There is a strong need to make an effective business policies which can help out to
improve the performance of the entire banking industry. Although, this can be said that the
internet banking can be introduced in the banking industry. Banks are required to communicates
efficiently to their customers so that they could improve and strong their security measures. The
internet banking are also needs to assess their internal security system equipments in order to
emphasis their strong security processes. This would emerge in positive perception of internet
banking customers relating to the security measures.
There is huge adverse impact of lack of working capital requirements on the operations of
banks. It is the management is to take effective measures which helps in effective management
of working capital. It provides the opportunity regarding effective performance of their day to
day operations and accomplishment of their desired targets (Storey, 2016). There are many ways
which are helpful in the management of working capital are managing cash flows, management
of AP and AR. It helps in improvement of their financial performance. There are different loan
offers which are provided by the banks of UK which helps in attraction of the large number of
customers (DUALE, 2016). Effective management of working capital helps in fulfilment of their
business objectives in an effective manner. Although, this can be said that the government and
the central government needs to make certain effective strategy that can be improved in an
effective manner by introducing new rules and regulations. Although, the banking business can
be done by using governmental strategy.

REFERENCES
Books and Journals:
Storey, D.J., 2016. Understanding the small business sector. Routledge.
Marr, B., 2012. Key Performance Indicators (KPI): The 75 measures every manager needs to
know. Pearson UK.
McKinnon, R.I., 2010. Money and capital in economic development. Brookings Institution Press.
Vernimmen, P. and et. al., 2014. Corporate finance: theory and practice. John Wiley & Sons.
Oludhe, J.A.C.K.S.O.N., 2011. The impact of credit risk management on financial performance
of commercial banks in Kenya. Unpublished MBA Project.
Owusu, T., 2012. Effects of motivation on employee performance: A case study of Ghana
commercial bank, Kumasi zone. Unpublished thesis, Kumasi: Kwame Nkrumah
University of Science and Technology Printing Press.
Oyugi, I.G., 2014. The effect of automated service on financial performance of Savings and
Credit Cooperative Societies licensed by Sacco Society Regulatory Authority in
Kenya. MBAStudent. University of Nairobi.
ONYANGO, S.O., 2016. Effects of Government Bailout on Financial Performance of
Commercial State Owned Enterprises In Kenya (Doctoral dissertation, Doctoral
dissertation, University of Nairobi).
Adu, F.A., 2013. Working capital management in trading and manufacturing firms in Accra and
its effect on liquidity and profitability-a focus on inventory and trade
receivables(Doctoral dissertation).
Arko, S.K., 2012. Determining the Causes and Impact of Non Performing Loans on the
Operations of Microfinance Institutions: A Case of Sinapi Aba Trust (Doctoral
dissertation).
DUALE, M.H., 2016. Effect Of Working Capital Management Decisions On Financial
Performance Of Small Holder Tea Factories In Kenya.
Ding, S., Guariglia, A. and Knight, J., 2013. Investment and financing constraints in China: does
working capital management make a difference?. Journal of Banking & Finance, 37(5),
pp.1490-1507.

Abuzayed, B., 2012. Working capital management and firms’ performance in emerging markets:
the case of Jordan. International Journal of Managerial Finance, 8(2), pp.155-179.
Smets, F., 2014. Financial stability and monetary policy: How closely interlinked?. International
Journal of Central Banking, 10(2), pp.263-300.
McNeil, A.J., Frey, R. and Embrechts, P., 2015. Quantitative risk management: Concepts,
techniques and tools. Princeton university press.
Miles, D., Yang, J. and Marcheggiano, G., 2013. Optimal bank capital. The Economic Journal,
123(567), pp.1-37.
Islam, M. A. and et.al., 2017. Determinants of Profitability of Commercial Banks in Bangladesh.
International Journal of Banking and Financial Law. 1(1). pp.01-011.
Sigmund, M., Gunter, U. and Krenn, G., 2017. How Do Macroeconomic and Bank‐specific
Variables Influence Profitability in the Austrian Banking Sector? Evidence from a Panel
Vector Autoregression Analysis. Economic Notes. 46(3). pp.555-586.
Abuzayed, B., 2012. Working capital management and firms’ performance in emerging markets:
the case of Jordan. International Journal of Managerial Finance. 8(2). pp.155-179.
Angeloni, I. and Faia, E., 2013. Capital regulation and monetary policy with fragile
banks. Journal of Monetary Economics. 60(3). pp.311-324.
Sharma, D. K. and Wadhwa, R., 2017, July. Determinants of Dividend Policy Decision: An
Analysis of Banks in India. In Proceedings of International Conference on Strategies in
Volatile and Uncertain Environment for Emerging Markets (pp. 617-623).
Panneerselvam, R., 2014. Research methodology. PHI Learning Pvt. Ltd.
Ozkan, N., Cakan, S. and Kayacan, M., 2017. Intellectual capital and financial performance: A
study of the Turkish Banking Sector. Borsa Istanbul Review. 17(3). pp.190-198.
Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design.
Routledge.
Online
Bank Industry. 2018.[Online]. Available
through:<https://www.bloomberg.com/research/sectorandindustry/industries/
industrydetail.asp?region=Europe>.