25 re-engineering and availability of funding to finance the acquisition of the necessary technology also affect the successful adoption of electronic commerce (Tassabehji, 2003).
for the assessment of competitiveness for banks comprise five main variables namely; share of the
technology and activities in the can be deduced in the a
The model proposed by Givi et al
Figure 2.4 Competitiveness Assessment Model for Banks Adopted from Givi et al.,
The competitiveness assessment model was applied to measure and compare the level of competition between private banks and commercial banks in the Iranian banking sector
study, the emphasis was
competitiveness for banks comprise five main variables share of the market, financial power, human capital, the use of
activities in the international market, from which sub can be deduced in the analysis of bank competitiveness (Givi et al, 2010).
The model proposed by Givi et al. (2010) is as shown in Figure 2.
Competitiveness Assessment Model for Banks.
Adopted from Givi et al., (2010:207).
The competitiveness assessment model was applied to measure and compare the level of competition between private banks and commercial ian banking sector (Givi et al., 2010). For the purposes of this emphasis was made on discussing financial power, information and
26 competitiveness for banks comprise five main variables human capital, the use of , from which sub-variables
(Givi et al, 2010).
Figure 2.4.
.
The competitiveness assessment model was applied to measure and compare the level of competition between private banks and commercial For the purposes of this financial power, information and
27 technology and market share as these were considered to be related to bank competitiveness, adoption of e-commerce and measuring profitability.
2.4.1 FINANCIAL POWER
The financial power of a financial institution can be measured in terms of the value of the assets, the amount of debts, the value of equity, the types and the availability of banking facilities, amount of net income and the magnitude of the earnings to asset ratio (Givi et al., 2010). The higher or the more these variables are in a bank, the higher or the more the competitiveness.
A research conducted by Givi et al. (2010) revealed that the highest ranking banks in terms of competitiveness in the Iranian banking sector were commercial state-run banking institutions. A study by Hauner and Peiris (2005) in less developed countries such as Uganda revealed that bank size contributes towards the competitive strength of banking institutions, with larger banks in terms of branch network and net asset value being more competitive than smaller banks. Bikker and Groeneveld (2002) supported the notion that large banks are competitive and that large banks are usually government owned or state run banks. This is also consistent with the study by Arrawatia and Misra (2012) whose findings indicated that 70% of banking system assets in India were in state owned banks and that bank size was positively related to revenue due to asset diversification. A study by Simpasa (2013) on the competitiveness of the Zambian banking sector found out that ZNCB bank of Zambia, was the second largest commercial state-owned bank in Zambia in terms of asset size before being privatised in 2007. ZNCB was one of the most competitive banks in Zambia although it was found out that foreign banks in Zambia were more competitive than local banks. This was attributed to the fact foreign banks were able to offer their products and services at cheaper rates than local banks and were able to earn non-interest related revenues (Simpasa, 2013).
Eichengreen and Gibson (2001) in their study on the competitiveness of the Greek banking sector pointed out that the impact of the size of the bank on profitability can be positive to some extent beyond which it can then be
28 negative owing to variables such as bureaucracy. The findings revealed that bureaucratic tendency hindered the flow of information within the bank, which would result in delays in the decision making process in cases where business deals needed to be concluded with urgency. Tan and Floros (2012), however, found out that there was a positive effect of the bank size on profitability contrary to researches by Fadzlan and Kahazanah (2009) and Ben Naceur and Goaied (2008), which seemed to suggest that bank size reduces profitability.
2.4.2 MARKET SHARE
According to Stair and Reynolds (2006), the market share of a company is the percentage of sales of a product or service relative to the total sales of the product or service in the entire market. The market share of banks can be divided according to the portion of demand deposits, level of savings deposits, share of short-term investment, amount of long-term investment, other deposits, share of bank system branches, share of joint revenues and share of severalty revenues (Givi et al., 2010). The banks that usually have a combination of the highest portion of demand deposits, highest level of savings deposits and highest number of branches usually has the highest market share. A study by Simpasa (2013) on the competitiveness of the Zambian banking sector in light of foreign bank presence, found out that four of the leading banks enjoyed about 67% of the deposits and assets relative to other banks for the period from 2002 to 2011.
A study on the competitiveness of the Iranian private and government owned banks showed that branch network or number of branches, the age of the banking institution and geographical distribution determined the size of the banking institution (Givi et al., 2010). Similarly government owned banks in India monopolised the Indian banking system (Arrawatia and Misra, 2012).
However, it does not always mean that older banks are more competitive and that banks with more branches are more competitive. Other factors such as balance sheet size, levels of earnings, levels of deposits and quality of human capital also affect the competitiveness of banking institutions (Givi et al.,
29 2010). This study sought to investigate whether e-commerce has contributed towards increasing the market share for FBC.
2.4.3 HUMAN CAPITAL
Humans facilitate commercial transactions such as banking operations through carrying out or performing tasks and activities. The availability and quality of personnel and experience of the employees have an impact on the level of competitiveness of banks (Givi et al., 2010). The Global Competitiveness Report (2011-2012) pointed out that high quality human capital is a crucial driver of productivity over the shorter as well as the longer term and should be able to rapidly adapt to a changing environment (World Economic Forum, 2011). Adoption of e-commerce involves the use of specialised ICT products and services, which require employees to have the technical skills in order to be able to use them. This research sought to assess whether employees had the technical skills to enable them to use e-commerce products.
2.4.4 INFORMATION TECHNOLOGY
According to Givi et al. (2010) information technology products or services such as SWIFT branches, number of ATM branches, PINPAD, online branches and number of credit cards issued also determine the level of competitiveness of a bank. Online banking systems and the number of ATMs increases the geographical spread of banking products and services (Kim and Davidson, 2004). This is essential in improving customer satisfaction as well as increasing the market share. Banks that own many ATMs and that offer many ICT products and services are better able to access many customers (Siam, 2006). The provision of various products and services may help to increase the volume of transactional business and number of customers.
Banks that offer variety may also be able to appeal to a sizeable number of customers with their product offering.
The growing use of debit cards in point of sale transactions and non-cash transactions as well as robust payment systems such as Equens 99 used in European countries such as the Dutch (Netherlands) and Germany, have
30 made it lucrative for banks to continue investing in information and technology (OECD, 2007). This study tries to find out the extent to which profitability in FBC is linked to the use of cards and transactional business generated from payment systems.
From the studies conducted by Givi et al. (2010) it was found out that private Iranian banks had to focus on improving their market share and international activity if they were to remain competitive whilst commercial banks had to focus on improving their financial power and international activity. Claessens and Laeven (2003) in their study on the assessment of competition and growth for Banks in the EU financial system found out that competition on access to finance affect the performance of the financial system. This could result in bigger banks being more competitive than smaller banks.
Further studies by Jun-Yang and Wei-Jiang (2002) assessed competitiveness primarily in terms of capital then in terms of profit on average capital, capital to asset ratio, return on assets and real profit growth. The use of these variables alone in the analysis was deemed to be inadequate. Jun-Yang and Wei-Jiang (2002) suggested that factors such as environmental analysis and market conditions be used in the analysis. Additional studies on the commercial banks in China by Claessens (2006) and Wang (2006) categorised the assessment of competitiveness by current competitiveness indicators such as internalization, return on equity, capital adequacy, asset quality and liquidity, market size and prospective indicators of competitiveness that include internal controls, information technology, human resources, service delivery and corporate governance. These factors were essential in coming up with the competitiveness assessment model for banks in Figure 2.4.