Bank Performance And Profitability Finance Essay
Ball et al. (2004) explained the banking sector’s customer loyalty via the European Customer Segmentation Index model. The survey data clearly shows that banking sector customer loyalty is primarily explained by quality, satisfaction, image and via communication, also it clearly conveyed that the effect of communication (both the direct and indirect effect) was unexpectedly high (Ball et al., 2004).
This also leads to the conclusion that in so called “bad times” retail banking services with very low product differentiation levels (Colgate & Hedge, 2001; Petersen & Nysveen, 2001; Ball et al., 2004; Ferguson & Hlavinka, 2007) should recognize the major importance of well-structured communication and spend enough time and resources in creating information which will be attractive, useful and valued by the banking customer. Also it could be predicted that if banks will not act in a positive manner towards focusing on their customer during the period of an economic downturn, soon it would create a high degree of attrition occurring in the retail banking segment.
The main objective of this paper is to provide an analytical report of bank performance and profitability of four of United Kingdom’s banks namely Lloyd’s, HSBC, RBS and HBOS. In line with this, this paper seeks to answer its main research question: Are the four banks’ respective profitability and earnings having an impact with each other?
In order to guide the stated main research questions, the following sub-questions will be answered through the data that will be obtained by this study:
What year will be the highest profit earnings for the four banks?
What year will be the lowest profit earnings for the four banks?
What will be the average profit earnings and earnings per share of the four banks from 2006-2009?
Will the highest profit earnings and earnings per share be affected by the global financial crisis?
In relation with the abovementioned objectives, research questions and sub-questions, the researcher formulated the following hypotheses to serve as a guide in the analyses of the data that will be gathered as well as the formulation of conclusions towards the end of the paper:
Main Hypothesis: The banks’ profitability and earnings have no significant impact with each other.
In relation, the following sub-hypotheses are formulated in relation with the main hypothesis:
Lloyd’s Bank’s average net profit and earnings per share have no impact with each other.
HBOS Bank’s average net profit and earnings per share have no impact with each other.
HSBC’s Bank’s average net profit and earnings per share have no impact with each other.
RBS Bank’s average net profit and earnings per share have no impact with each other.
The profitability and earnings of the four banks have no impact with each other for the year 2006.
The profitability and earnings of the four banks have no impact with each other for the year 2007.
The profitability and earnings of the four banks have no impact with each other for the year 2008.
The profitability and earnings of the four banks have no impact with each other for the year 2009.
The abovementioned hypotheses are based from the study conducted by Ashton (1998). .Ashton (1998) examined the UK bank industry efficiency during the period 1984 to 1995 using the time trend to measure average technical change. The results indicate important changes in the production models as compared to intermediate models. The study shows that there has been a steady catch up approach towards average technology whereas the intermediation approach indicates that there has been a shift in the cost function.
On a related study, Berger et al (2000) have tried another approach towards measuring the efficiency of banks. They have used cost and profit frontiers to compare the efficiency of banks in five different countries namely France, Germany, Spain, UK and US. They found out that cost and profit efficiency are greater for domestic than foreign banks in three countries for example France, Germany and UK but note importantly that the results are not statistically high or significant. In comparison in the US domestic banks are on average less cost effective than foreign banks. Drake (2001) uses the same approach of frontier methodology on data for main UK banks from 1984 to 1995. He found out that there is an important relationship between size and efficiency of the bank and hints on the increasing competition in the market within which the UK banks operate.
There have been various studies conducted regarding the profitability and earnings of banks especially after the turmoil of the financing industry in the year 2008. UK retail banking sector has had fewer observations than most of the other European countries. Ashton (1998) examined the UK bank industry efficiency during the period 1984 to 1995 using the time trend to measure average technical change. The main objective of this paper is to provide an analytical report of bank performance and profitability of four of United Kingdom’s banks namely Lloyd’s, HSBC, RBS and HBOS for the years 2006-2009. The four banks’ net profit earnings and earnings per share for the four years were gathered and analyzed and compared using the standard computation of mean average and two-tailed T-test. Based on the results of the gathered data, the net profitability earnings and earnings per share of all the four banks have no impact with each other for the years 2006-2009. Also, majority of the banks’ lowest net earnings are on the year 2008, the onset of the global financial crisis. It is recommended that future studies regarding the United Kingdom banks profitability and performance should be made. Since only four of the major banks were studied, it is recommended that all of the United Kingdom banks should be included. With this, a wider range of data will be available and a more accurate result shall be obtained.
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