The strategic management of financial services firms has become an increasingly
complex task over the last three decades. The banking industry, until the end of the
1970's, was heavily protected and characterised as a staid and stable industry in the age of
'3-6-3' banking (borrow at 3%, lend at 6%, be on the golf course by 3 p.m.. This age
came to an abrupt end and banks were forced to become competitive and fast [Matten:
1996]. Today, the banking industry is characterised by volatile markets, increasing
consumerism, globalisation and competition, the rapid introduction of new technology, a
changing regulatory environment and an increasingly inter-coupled business
environment. Under conditions of increasing complexity and interconnectedness, it has
become increasingly difficult to manage a modern financial services firm by intuition
alone.
The aim of this dissertation is to demonstrate how a system dynamics simulation model
can expedite learning, insight and foresight for a typical retail bank involved in lending
and deposit-taking activities in a retail banking market.
The model represents the interest income generating system of a typical retail bank
embedded in its environment. The exogenous environmental inputs can be initialised
with a wide range of different characteristics; a stable interest rate environment versus a
volatile environment, a mature market with low loans growth versus a fast growing
market, and so on. Similarly the characteristics of the retail bank may be initialised with a
wide range of characteristics; a start-up bank versus an established bank with a large loan
and/or deposit book, aggressive versus conservative credit policies, etc.
In particular, we develop a dynamic hypothesis of the complex structure of the interest
income generating system of a retail bank. This hypothesis is translated into a
quantitative system dynamics simulation model that serves to provide an experimental
tool for testing strategic responses of a typical bank under different environmental
scenarios enabling us to infer how performance arises. The model demonstrates how
performance arises ex-ante from the dynamic structure of the bank's resource system.
The experimental results provides a dynamic view on the performance characteristics of
the income generating system of a retail bank described in the language of the Dynamic
Resource Systems View of Warren and Morecroft [Warren: 2000].
- Firstly, the results show the scale of the resources developed; the size of the loans
book, the number non-performing loans, the size of the depositor book book, and
the consequent financial performance at any cross-sectional view in time.
- Secondly, the experimental results indicate at what rate the resources have developed;
the speed at which the advances book has developed, the rate with which the
depositor book is generated under a particular set of exogenous circumstances and
endogenous policies.
- Thirdly, the results show that the observed performance of a number of similar
banks can be described by a single, generic systemic feedback structure. Performance
differences arise due to different resource endowments and decision policies of decision agents with different dominant logics about how they should structure their
business.
- Fourthly, the results show that the time evolution of financial performance of the
interest income generating system is path dependent, that is, the time path of
performance is constrained by its current resource endowments, policies and
capabilities.
The central thesis of this dissertation is that the dynamic behaviour of interest income is
a result of an endogenous systemic structure in response to external exogenous factors
such as interest rate movements. It is our contention that the complex interrelationships
between issues such as capital management, interest rate management, liquidity
management, cost management, strategic objectives, etc, justifies the use of a more
complex systemic and dynamic framework for analysis that may produce new insights
into the behaviour and management of the interest income system for a typical retail
bank. The purpose of this research is to demonstrate how the dynamic behaviour of
interest income generation of a typical retail bank arises as much from the interaction of
decision agents and tangible and intangible resource flows within the bank's system as
from any exogenous inputs into the system.
The model developed here is a highly aggregate model of limited scope encompassing
the traditional core issues facing a typical retail bank and sheds some light on the issues
addressed by the model. Although being of limited scope, the model is deemed to be
sufficiently comprehensive to demonstrate how the dynamics arise. The work presented
here is not fully complete, it represents a plausible hypothesis of system under study but
has not been sufficiently validated to be considered scientifically complete. Much further
work is required. However, this dissertation represents work that has been undertaken to
date in an attempt to understand the system under study from a systemic perspective.
Further extensions may be undertaken to provide insight into some of the current issues
facing the modern retail bank executive. Understanding the dynamic structure of a retail
bank sheds some light on the potential responses available to improve performance.
The contribution of this research lies in the systematic and systemic abstraction of the
interest income generating structure of a typical retail bank, the development of a
quantitative model thereof and the insights obtained from this. The model developed
may be considered to be a generic model applicable to any bank with a similar structure
but with different objectives, parameter values, resource levels, policy parameters and
exogenous inputs and provides different performance time paths with the same
structure. The insights about solutions are specific and time dependent. This provides an
insight that traditional static models do not provide by identifying specific solutions
applicable at specific time frames and valid for specific durations thus coupling a time
dimension to all solutions. / Economics / M.Com. (Quantitative Management)
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:unisa/oai:uir.unisa.ac.za:10500/844 |
| Date | 02 1900 |
| Creators | Lach, Peter Leonardes |
| Contributors | Swanepoel, C. J. |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Dissertation |
| Format | 1 online resource (various pagings) |
Page generated in 0.0017 seconds