url
6
Feb
2014

THE EFFECT OF BANKING EXPANSION ON PROFIT EFFICIENCY OF SAUDI ARABIA COMMERCIAL BANKS: LITERATURE REVIEW

THE EFFECT OF BANKING EXPANSION ON PROFIT EFFICIENCY OF SAUDI ARABIA COMMERCIAL BANKS: LITERATURE REVIEWFinancial Institutions are experiencing an era of rapid changes, which are fueled by innovative improvements in technologies and date processing. White and Frei, Harker& Hunter shed light on the importance of power and low cost of new technology; economic changes; intensified international competition; and deregulation that has been influential in inducing innovation (it can, also, inhibit it). All of these causes and effects are mutually interacting, and consequently affecting each other.
Sinkey concerns with the Information technology, as one of the most important five issues, which affect the banking performance. Sinkey’ TRICK are Transparency, Risk exposure, Information technology, Competition for customers, and Kapital (German spelling).
Technological innovation in retail banking industry has been spurred on by forces of new distribution channel systems, such as PC banking. So, the evaluation of banking channels of distribution is, to a great extent, an evaluation of banking technological innovations.
Branches remain the major delivering vehicle of banking services, and it’s interesting to note that, despite the “hype” that branch delivery is dead, most customer still frequent the branch, where number of branches is increasing, including supermarket-based locations (called “instore” branches) and kiosk-like branches.
Berger& DeYoung assesses the effects of geographic expansion on bank efficiency, for 7000 U. S. banks, over the period 1993-1998. The results imply that there may be no particular optimal geographic scope for banks. Also, Akhavein, Frame& White finds that number of branches and size are positively related to the diffusion (i.e., probability and timing) of the adoption of new technology by its “first movers”. Soteriou & Zenios has indicated that analyzing banks’ efficiency should include branches, service quality, operations, and profitability, simultaneously.
Technologies and date processing are “the heart of financial services” White. On the other hand, the blend of innovation and behavior change “lies at the heart of modern banking organization”.
ATMs began to be introduced in the 1970s, in forms of internal ATMs, off-premise ATMs, or remote ATMs, as a distribution channel, which serves banks and customers. Scholnick et al analyzes the value of ATM network to its users, where it’s influenced by its number of locations (network effect) and its number of users (production scale effect). Saloner & Shepard discusses the network effect, and finds that the greater the number of branches a bank has, the earlier will have introduced the new ATMs, which is consistent with findings of Akhavein et al. Banks have invested heavily in ATM machines, due to their cost advantages on a per-transaction basis, where it’s less than teller or telephone human operator. This has led banks to attempt to change customer behavior through the additional of fees (the “stick”) and the variety of rebates (the “carrots”), to migrate customers away from high-cost delivery systems. Also, Massoud et al finds that the level of ATM surcharge is positively related to market share of large banks, while Prager finds it negatively related to market share of small banks.

Financial Institutions are experiencing an era of rapid changes, which are fueled by innovative improvements in technologies and date processing. White and Frei, Harker& Hunter shed light on the importance of power and low cost of new technology; economic changes; intensified international competition; and deregulation that has been influential in inducing innovation (it can, also, inhibit it). All of these causes and effects are mutually interacting, and consequently affecting each other. Sinkey concerns with the Information technology, as one of the most important five issues, which affect the banking performance. Sinkey’ TRICK are Transparency, Risk exposure, Information technology, Competition for customers, and Kapital (German spelling). Technological innovation in retail banking industry has been spurred on by forces of new distribution

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Kevin J. Brandon

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