MSc International Banking and Finance
The financial year 2008-2009 has been very significance in the history of banking industry. The industry faced the biggest ever crises since the great depression. The whole global banking system was challenged for various reasons.Â The performance of public sector as well as private sector banks went drastically down. The crisis has not left any country without panic but the impact was subjective.Â The developed countries like US and UK suffered more than the developing countries. Many literatures have been written and many case studies took place to analyse the impact of recession. It’s has been an important aspect to analyse the performance of banking sector in various continents. In this research I have planned to compare the impact of recession on the India’s biggest private sector bank ‘ICICI’ which would reflect on the level of impact it has went through. The research would be a comparative performance analysis of ICICI bank and its subsidiaries in the UK, Canada and Russia.Â I believe the Bank is one of the best examples to analyse the performance to find the impact of global financial crises as there are different of opinion in regards to the impact of financial crises on Indian Banking sector.Â Â
2.0Title of the research:
Â Â Â Â “The analysing the performance of Bank in financial crises- The case of ICICI Bank”
3.0 Rationale for Study
The focus of the study is to carry out an extensive analysis of the performance of ICICI bank in financial crisis of 2008-2009
To achieve this aim, the study will examine:
- The main determinants of ICICI banks efficiency and performance
- The effect of financial crisis on cost, revenue, profit efficiency and stock return performance of Â ICICI banks.
- The differences in performance of ICICI bank in India, US and in the UK.
- The effect of banks capital on a its ability to survive in the period of crises,
- The result and find out the similarities and differences of impact of financial crisis.
3.0 Literature Review:
The recent financial crisis has left clear evidence of global downturn. Not only developing but also advance countries have suffered in a very bad way. In last year and half market has fallen by 35-40%. According to the IMF data the impact of the recession is comparatively less in the Asian countries. But banks that are involved in the global financial market in subprime mortgages were exposed to the financial downturn. As per IMF records large US banks losses more than a trillion dollars in bad loans and expected to lose more ahead. This time financially US were hit harder than Europe and Asia or African continent. The World Bank survey of 425 Asian firms and 78 banks in 14 developing countries shows that “the global financial crisis has constrained trade finance for exporters and importers in developing countries. But the impact varied by the firm size, activity, and countries’ integration into the global economy.” The analysis of performance in the period of crisis also differs from institutions to institutions and country wise.
In general, the performance of banks and non banking financial institutions has been measured by various methods but most of the literatures used combination of different financial ratios.Â There are number of studies analysing the efficiency and the performance of financial institutions. However, there have been numerous studies analyzed the efficiency of financial institutions. Among these Dennis Olsonand Taisier A. Zoubi (2008) uses 26 financial ratios to distinguish between conventional and Islamic banks in the Gulf Cooperation Council (GCC) region. In the comparison of Islamic Vs. Conventional Banks Dr. Taisier A. Zoubi has mention 16 financial Characteristics of Banking Industry. Dimitri vitas (Nov 1991) has raise the point about the use and misuse of financial ratios.
Claudia Girardone. (Feb 2000) has also analysed the Determinants of Bank Efficiency in the case of Italian banks. This paper would use the various financial ratios which describe banks liquidity, profitability, asset quality and efficiency.
3.1 The Financial Crisis and Indian banking industry
‘As it’s obvious, the global financial crisis is unlikely to spare India’s corporate sector.The perceived impact as reflected in financial markets indicators is acute: the Sensex lost over 50 percent and the rupee depreciated 23 percent in 2008’ (IMF Country Report No. 09/186)
In 2007 India’s GDP dropped by 4% and expected to remain between 5.5 and 6.5 in 2010
Limited exposure to the sub-prime mortgage market helped Indian banking sector to maintain the stability.Â India’s refurbished financial systems and supervision system supported this performance. The well managed financial reform rapid growth and the diversification has given the annual credit growth of above 20% and reduce non performing asset to 2%. In 2008-09 with credit growth of 17.3% Indian banking sector reflected sound and profitable attitude, but all credit mainly goes to the large public sector banks with stable deposit growth. The banking sector in India has less impact of crisis but the banks like ICICI which has its subsidiaries in US and Europe has an impact which may be comparatively less or more.
3.2 ICICI Bank
ICICI Bank is India’s second-largest bank with total assets of Rs. 3,674.19 billion (US$ 77 billion) at June 30, 2009 and profit after tax Rs. 8.78 billion for the quarter ended June 30, 2009(ICICIbank.com). The ICICI Bank has its presence in 18 countries worldwide. The Bank offers various banking and financial products. The Bank currently has its owned subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. The shares of ICICI are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). As a largest private bank in India ICICI has its business in the international market and first Indian company to be listed on the New York stock exchange. ICICI was not the exception to have an impact of recent financial crisis, as like most of the international banks ICICI was also connected to the US subprime mortgages. ICICI Bank lost its share value more than 50% during the period of crisis. Till August 2008 ICICI Bank was the most valuable bank with a market capitalisation above all Indian private and public sector banks but it has become to become the victim of global financial crisis like other international banks. With asset of $9bn in UK and $5bn in Canada ICICI has the exposure of $12bn in overseas loan The US subsidiary of ICICI also has a debt of $76m in Lehman Brothersdebt And ICICI UK has $3.5 billion investment in various instruments of which around 18% are in US papers. But the same time the capital adequacy ratio at ICICI is 13.4% which is higher than the mandatory percentage. (IBN Analysis)
4.0 Aims & Objectives
The aim of the study is to analyze the impact of the 2008-2009 Financial Crisis on the performance of ICICI banks and its subsidiaries in the UK, Canada and Russia.
In order to achieve the above aim, the study has four main objectives:
Whether the Indian banking sector was exposed to contagion effects of the current financial crisis
To compare the impact of the Financial Crisis on ICICI Bank India, the UK, Canada and Russia.
How were the pre-crisis performance and profitability of ICICI banks in India, the UK, Canada and Russia?
During the pre-crisis period, how was the relationship between bank efficiency and financial indicators at ICICI Bank?
5.0 Proposed Methodology and Critical Application
There are various aspect of performance analysis which has been used to review or to compare the performance of banks and banking sector. In the performance analysis of Italian banks Claudia Girardone (2000) has mention various determinants of banks’ performance, profitability, and efficiency. Many studies focus of different characteristics of banks performance like liquidity, profitability, returns on asset and so on. In this study to examine the performance of ICICI bank India and the UK, Canada and Russia the simple accounting ratios would be used and to check further on the difference in performance in different countries the regression analysis will be used. The test will help to figure out the ICICI bank’s exposure and the effects of the financial crisis on its operations in given countries.
The paper discusses the correlation of efficiency scores with the financial indicators such as asset quality, capital ratios, operational and liquidity ratios. Paper uses the set of sixteen financial ratios which are the suggested financial characteristics of banking industry (Dr. Taisier A. Zoubi ) to analyse the performance of ICICI Bank and further examines the difference of performance at ICICI bank in India , UK , Canada and Russia.
5.1 Proposed Data Collection
For this research secondary data would be suitable thus, I intend to collect and analyse secondary data for the proposed study. The secondary data will be collected in the form of a literature review and provide details about the performance analysis and recent financial crisis. The financial statements and annual reports are required for the sample period of the research to examine and to run the proposed analysis for ICICI bank India, US and UK, The data is in the original currency (Rupee) of the parent company ICICI Bank India Pvt. Ltd., but provides a choice to covert the data to any other currency, including the USD and GBP. This paper uses the INR-based reports in the selected sample.
5.2 Access to the Data
This study evaluates the cross-country level data compiled from the financial statements of ICICI banks in India US and UK over the period 2004 – 2009. The primary source for data used in this research is the banks’ balance sheets and income statements published on the Bank website. The choice of this sample period covers the longest available history of ICICI banks UK,
5.3 Justification of Methods
I believe that secondary data is suitable for this research, which can be internal or external to the ICICI Bank and may be accessed through the internet or recorded or published information of bank. As there are various sources to collect secondary data, likes books and periodicals world bank and IMF publications of economic indicators, National census data, statistical abstracts, Central banks data bases, the media, annual reports of the bank, case studies and other archival records. The advantage of using secondary data sources is savings in time and cost of acquiring information and many times its comparatively easy to access.
6.0 Limitations & Delimitations of the study
The proposed study is limited by time constraints- the completion time limit is three months.
The ratios analysis has major implication for assessing bank performance in developing countries but in this case the data is from both developing and developed countries UK and the UK.
Given the range of services and the cost difference in India US and UK, India’s cost -assets and cost income ratios should be smaller than the UK as an developed country.
This study does not consider the inflation effect, and the risk factor in the respected country,
7.1 Academic Benefits
The study will be of interest to academics that have an interest in financial services performance review. The results will add to, and update the academic literature that presently exists on performance analysis. The study will also provide a useful insight into the use of financial performance indicators in banks.
7.2 Practical Applications
The study will help to understand and measure the impact of crisis on ICICI bank. The result will show the difference of performance of ICICI bank in the given countries which would be of interest to the managers of financial services as it will provide insight into how the performance of the bank could move in the period of financial crisis. The results of the study will help to understand the difference of impact of global financial crisis in cross countries. It will also help to find the effect of banks capital on a bank’s ability to survive in the financial crisis, and its competitive position.
8.0 Proposed Structure
The format of the dissertation will be as follows:
- Title Page;
- Contents Page;
- List of Tables and Figures (including word count);
- Literature Review;
- Results and Discussion;
- Conclusions and Recommendations;
- Evaluation of Study and Scope for Further Research;
ICICI Bank. (2004-09). Annual repots. Available: http://www.icicibank.com/pfsuser/aboutus/resultsann/webcast_09.htm. Last accessed Nov 11,2009.
MF Global financial stability report. (Oct 2009). World economic and financial survey. Available: http://www.imf.org/External/Pubs/FT/GFSR/2009/02/pdf/text.pdf. Last accessed Nov 20,2009.
world bank. (Aug 2009). India – Banking Sector Support Loan Program, Available: http://go.worldbank.org/SRP7OBC9Q0. Last accessed Nov 20,2009
Overseas development institute-Conference Note. (Dec 2008). Measuring Commercial Bank Efficiency – Use Effects of the Global Financial Crisis on Developing Countries and Emerging Markets. Available: http://www.odi.org.uk/resources/odi-publications. Last accessed Nov 11,2009.
IMF. (Jun 2009). IMF Country Report No. 09/186. Available: https://www.imf.org/external/pubs/ft/scr/2009/cr09186.pdf. Last accessed Nov 18, 2009.
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International Monetary Fund (2009) world economic and financial survey Available: http://imf.org/external/pubs. Last accessed 12/11/2009.
Ketul S.. (Aug 2008). IBN Analysis. Available: http://www.gurufocus.com/news.php?id=33505. Last accessed 20/11/2009.
Dennis Olson and Taisier A. Zoubi . (March 2008 ). Using accounting ratios to distinguish between Islamic and conventional banks in the GCC region.The International Journal of Accounting.. 43 (1), 45-65.
Dimitri Vittas. (Nov 1991). Measuring Commercial Bank Efficiency Use and Misuse of Bank Operating Ratios.CountryE conomicsD epartment The World Bank WPS 806. WPS 806 (1), 1-54.
Claudia Girardone. (Feb 2000). Analysing the Determinants of Bank Efficiency: The Case of Italian Banks.University of wales , School of Accounting , Banking and economics. 1 (1), 143-166.