Bank Management – Definition, Objectives, Importance

Bank Management Definition

The only way to achieve the handsome amount of profit compared to similar kind of organizations is to establish skilled and efficient management in any organization.

A bank is a profit-oriented organization; therefore its management procedure is more challenging as regulatory system always is there to control the bank management.

3 Importance of Bank Management

3 Importance of Bank Management;

  1. Changing Regulation of Banks.
  2. Increasing Competition due to Changing Technological Development.
  3. Changing International Relationship.

Following diagram shows how the bank management becomes more challenging over time:

Bank Management - Definition, Objectives, Importance

So, the above diagram shows that day by day, bank management becomes more complicated due to the effect of these three determinants.

Changing Regulation of Banks

At the end of the 3rd decade of the 20th century, thousands of banks around the world failed due to the economic recession called Great Depression.

Due to the bank failure, millions of depositors suffered from a great problem, as they didn’t get back their deposited money. From this time, to protect the interest of depositors, deposit insurance scheme was made mandatory for banks.

And from this time, the regulation for banks began to multiply from various angles.

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Previously,

to receive registration certificate or certificate of commencement of business and to submit the financial statements were considered to be sufficient for the controlling agencies of banks.

Some of the techniques followed by the bank regulatory authorities to control over the activities of commercial banks are;

  • Direction for the right price of bank services.
  • Introduction of deposit insurance.
  • Direction for adequate liquidity.
  • Direction for capital adequacy.
  • Direction for approval and non-approval of bank loan operation.
  • Recruitment of directors and direction regarding recruitment and directing their duties and responsibilities.
  • Loan supervision, review, and examination.
  • Direction for adequacy reserve etc.
  • Day by day bank management becomes more challenging by introducing rules and regulations by bank regulatory authorities.

Increasing Competition due to Changing Technological Development

A number of served client and quality dimensions of services are the basis of competition. The bank, which provides better service with high quality, is capable of being successful in competition.

Two banks jointly create new services that provide the customers with a sustainable competitive advantage.

Why the new benefit or service that the bank offer is unique and different from that of the other organizations requires the commercial banks to participate in the multidimensional competitive environment.

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The bank, which can attract more clients, can create client repeatedly. This technological environment absorbed more investment and new training.

So, the management of bank creates a new strategy of banking services adjusted in the competitive banking business.

Changing International Relationship

In the international banking business, the bank faces extensive amount of legislation in the event of a new problem. International relations, global or bilateral, create more competition in the banking business.

Other factors, such as changes in international trade and commerce, laws of found transfer, change in social and cultural factors establish new operational management system which challenges the banking business.

In this era of modern science, a solution of competitive environment and development of international relations among banks, the management of bank follows a strategy to merge banks in the international banking business.

All these factors stated make bank management more complex and challenging.

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