This report, prepared for the
purpose of to examine how Activity Based Costing (ABC) is important to Sri
Lankan Commercial banking sector and what barriers having for implementing it.
To achieve the purpose, five articles has reviewed related to the study area.
In considering articles, and banking practices have discussed the contained of
cost/interest of a commercial bank and current cost application. However,
implementation of ABC system is difficult and articles indicate some failures
of it. As well as discussed the process of cost application in a bank.
In considering the articles,
report has pointed the benefits of application of the ABC system in a bank of
Sri Lanka. Then discussed the barriers of implementing an ABC system to
commercial bank of Sri Lanka.
According the study, ABC system
is not only appropriate for use in a manufacturing organization in Sri Lanka,
it is also most appropriate for commercial bank of Sri Lanka to have benefits
as well as to achieve competitive advantages.
In commercial banking
sector lending interest rate is recognized as a product's selling price and
before decide the lending interest rate, bank has to calculate the cost of fund
rate as a product cost. The direct cost of commercial banks includes what the
activity consumed, such as financial cost and other cost comes under
administration cost. For At the time, bank calculating cost of fund rate they
have to use costing techniques.
In Sri Lanka,
interest rate decisions are taken by The Central Bank of Sri Lanka. The official
interest rates are the Standing Deposit Facility (SDF) Rate and the Standing
Lending Facility (SDFR) Rate are decided by them. However, the administration
costs decision has to take my each commercial bank management. At that time,
they had to use the techniques to absorb the indirect cost of commercial banks
such as the management and maintain activities, and the activities mainly
involved ground, information system, human resource, administration management
and marketing.
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