The global trend is being driven partly by an increased focus by banks on the financial performance and on the creation of shareholder value. In essence, the potential for growth lies in the value of their investments. This would be the right thing to do in the interest of long-term survival. There are enough  4  BIS Review 33/2002  examples of companies around the world that had lost track of the true reason for venturing into a particular business and as a result, they find themselves no longer in the business. Despite narrowing of interest margins and high costs, the banking industry has been able to increase their returns with the average return to shareholders in 2001 being 14.5%. Banks, like other companies in a free market economy, have a responsibility to generate returns for their shareholders. It is in the interests of the community as a whole that they do so, otherwise we could end up with a weak banking sector. But any company maximises shareholder value subject to constraints. These may be imposed by laws and regulations, or by the expectations of society. This means that if banks wish to preserve their reputation and the confidence of their customers, on which ultimately the strength of their franchise depends, they should act in a way that is seen to be fair and reasonable. To do otherwise, may in the long-term, be inconsistent with the objective of creating shareholder value.
While the gaps in operational efficiency and productivity have improved, there remains great scope for further improvement particularly in areas where the domestic banks are evidently behind the foreign banks. For instance, productivity standards of the counter personnel as measured by the number of counter transactions per counter employee for the domestic banks averaged approximately 5,000 compared with 11,000 for the foreign banks. Meanwhile, the number of domestic banks that did not experience any disruption in their retail deposit and loan initiation systems is significantly lower than that of the foreign banks. In terms of the time taken to approve new credit card applications it averaged 8 days for the domestic banks compared with 6 days for the foreign banks. As can be seen from the scorecard, the consolidation programme for the domestic banking sector was a necessary pre-requisite to enhance the sector’s capacity to compete. Size alone however, is not a sufficient condition that will result in producing efficient and competitive banks and it does not offer guarantee of success. Being a large bank is however, an important enabler to achieving enough scale to be able to invest in cutting-edge technology and management systems and to attracting the talent required to compete with the best players in the market. Domestic institutions need to be able to meet the range of products offered by foreign competitors. But the larger scale and wider range of activities will demand stronger management teams.