Implication of Non-financial performances (NFP) to local banks context.

Implication of Non-financial performances (NFP) to local banks context. 

Financial performances

In our local context all most all of the banks are used to measure its performances based on financial data.  They are publishing & evaluating their performances & market share by figures published in the annual report. Financial performances are measured by Return of equity / return on assets / profitability / return of employee / none performing loans & advances etc.

Financial performances are very important & regulated by the banks & the relevant authorities according to the given guidelines but in most banks NFP is less important & not practiced on regular basis.

Non-financial performances

But in this research they focused to measure the non-financial performances to gain long term competitive advantage among the competitors. In many cases NFP are considered as short term but that should be taken as long term financials as those are play quite a big role to an organization.

Employee moral increases customer satisfaction, Improve service quality, customer retention & its leads to higher return on capital & finally that will maximize owner’s wealth in the end.

The most important factor is the customer satisfaction & there is a direct impact on improving financial performances. To improve customer satisfaction the most second important factor is the quality service. This will lead to retain more & more clients to the organization & they will buy more products & services from the organization. Not only that they will give free advertising via good word of mouth to the community where finally you reduce the advertising cost. Retaining an existing customer is more cost effective to the bank rather than canvassing a new customer.

Therefore nowadays banks are concerning to improve service quality & improve customer satisfactions. As the banks are engaged in service providing sector the service delivered is depending on the person to person which couldn’t be measured properly. There are arguments for accurate measurements of different performances & techniques. However each bank uses their own strategies to measure profit driven non-financial performances.

Methods of applying to local context

CEO’s of the banks should be taken this seriously & have to implement systems   by improving future cash flows of the company. This could be done through random interviews, Questioners, online surveys, placing self-rating devices at the counters, Telephone calls, creating job profiles for customer relationship managers to give extra attention to the clients, Private banking facility for prime clients, offer service to the clients door step, etc. However bank should retain/increase loyal clients with relationship @ a minimum cost to get the maximum benefit.

In addition according to the research if the bank can improve moral level of the staff that will lead to increase customer satisfaction & finally increase the return on capital. Employee morale is most essential element for achieving superior profits. Because such employees produces satisfied & loyal customers who creates long term positive financial performances.

In simple way CEO of a bank should think satisfied customer is the most important to the organization & to achieve this, quality service must establish & that service is delivered by employees of the company. (Also new technology & devices should introduced)

Opportunities to the bank

This will be very important to bank as discussed earlier coz with the improving service quality & customer satisfaction leads to retain customers, cross selling & up selling, reduces advertising cost, long term client knows the banks methods & how to work with bank staff (filling forms, what documents to submit, avoid busy times, who is the exact person to contact service vice etc) & it save the time. This will reduces customer waiting time & bank staff can give additional service by using this time. When you have enough time to serve existing clients as well as new clients they will compare the time saving & the speedy service of our bank, they will compare with other banks & recommend to others too. When the client is recommending our service to someone else that is the most power tool that we can use to grab new businesses & maximize the wealth & the market share.

Challenges / barriers of to improve Non-financial performances in a bank to improve profitability

Main challenge is the way how to measure employee morale, service quality, customer satisfaction level etc.. Financial data are quantitative & in a society figures are being monitored & those are mandatory requirements by the authorities. As the governing bodies are very keen on financial status of a bank & annual reports published. Banks are also stick to financial reporting but slightly neglecting non-financial benefits in a bank.

Also to measure this NFP ‘s current economic condition also should be considered, If the economy shows a downward trend automatically we are focusing only on financial performances rather than thinking of quality service, employee morale & customer satisfaction.

Also service is delivered by individual staff & that will depend on the situation, education & confidence level, mood & the schedule of the day of employee & the customer. That will vary day to day & unable to measure accurately.

Therefore bank needed to do surveys via calls, emails, online, establish self-rating devices where additional cost incurred to the organization. Banks CEO’s are very reluctant to spend additional money because that directly impact to financial performances immediately, Also improve employee morale some instant needed to give salary increments, allowances where hit P & L.

Above facts are the challenges to implication of NFP’s in local context.

Advantage or disadvantage to a bank by improving Non-financial performances

As we discussed above if we have strong morale staff in our organization they work hard & loyal to the bank. They will give the maximum output to retain clients as well as grab new clients. Maintain good relationships with clients & provide long standing loyal customer base to the organization. These clients are stick to the organization & buy products regularly, you can cross sell & up sell. Loyal clients are not running behind prices of the products as they love to have better quality service. They recommend your bank to others. When you have more loyal satisfied clients automatically your marker share will increase due to cross/up selling & most of them are not price sensate so in the long run this will directly impact to your financial performances positively. Also loyal staff never left the organization & your staff turnover ratio will reduced & bank doesn’t need to recruit new staff regularly & that recruitment & training cost also reduced.

Disadvantage observed is the immediate cost incurred to establish new devices, carry surveys, staff trainings to improve morale etc. To mitigate same bank could distribute the cost among 2 -3 years proportionately with lesser impact to the P & L.