Bank Performance Measures and Relative Profitability

This study analyzes the nature of the association between selected international banking measures and relative bank profitability. The measures analyzed are key variables that affect the wealth maximization efforts of bank financial management: (1) spread (net- interest margin) management, (2) overhead cost control, (3) liquidity management, and (4) capital management.The analysis was carried out annually and longitudinally for the years 1978-1980 on large banks with both domestic and foreign operations. The management of foreign operations is important in an absolute sense to bank efforts at wealth maximization. Overall, high-performance banks achieve relatively high net-interest margins with stable growth through a combination of several factors and growth conditions: (1) conservative interest income and interest expenses with stable growth; (2) aggressive interest-sensitive policies with variable growth; (3) conservative total use of variable-rate assets with stable growth; (4) conservative total use of variable-rate funds with variable growth; and (5) aggressive "gap" policies with variable growth