The banking institution or any financial institutions are expected to continue their duties and aim for serving both business sectors and people. As preferred by many of the individuals or group of people, the banks are the most trusted financial institution because of its strength to remain unshaken even in times of financial and economic crises. The banking institution remains profitable through their application of various strategies, deeper that the cash management known by other business institutions.
Background and Problem Statement
As the main provider of financial needs, still the banks are plagued with several of problems not only their services and provided products, nor in their performance in the market, but by picking the best strategy to continue their business cycle and remain profitable. Although the processes are strictly monitored, still it can create a great possibility for failure. Moreover, the impact of globalization and innovative changes such like the introduction of e-banking services can create surprising disadvantages. In the application of the business strategies like the working capital management, the anticipated risk can be easily identified to avoid failure. However, what are the impacts of the working capital management towards the financial cycle and profitability of banks even if there are influences of economic uncertainties?
Research Aim and Objectives
The main aim of the study is to measure the impact of the working capital management being implemented in banks towards their profitability. In the continuing support of the study to achieve the potential result, there are three important objectives that need to satisfy. First objective is to describe the essence of working capital management through focusing in other forms of business institutions. Second is to describe the effect of working capital management along with the growth in the economy through the investment. And third is to recognize the potential impacts that it may create with the existing credit risk management of the banks to foster the growth and profitability.
Review on Literature
The working capital management already created changes in both domestic and international business, all for the aim in managing the financial inputs and outputs. Apparently, there is a significant growth in the business and as well as the economy. With the idea of business cycle, it seems that the small and medium scale enterprises (SMEs) emerged in the effective adaptation of working capital management. The idea of working capital came from the collaboration between the current assets and the current liabilities. In a lighter explanation, it is described as the two (assets and liabilities) are working together to achieve the essential needs of the business. In the business transactions, the business manages to pay all the liabilities in a relevant short period of time that probably came from the business’s engagement in the financial institutions through the financial supports (Le and Nguyen, 2009). On the other hand, the business did not pay much attention on their financial situation; the business might find itself in the middle of the consequences. If the business is engaged in three or more financial or microfinance institutions, definitely the business will sooner experience the drastic situation such as total loss otherwise, their business venture is really effective in the market (ADB, 2007). The same concept can be applied in the banking institutions; in fact there is big advantage for them, because the banks have the equipment or method to have an easy access regarding the monetary situation across the globe. Added to that is the skills of the employees and their professionalism and their long years of handling the financial problems. Towards the continuous profitability of the banking institutions, the working capital management when applied to the credit risk management, there is an indication on the robustness that enables the banks to assess the financial levels in different business environment, basically by judging through the portfolio of the business (Focus Group, 2007).
Methodology
The suggested method in the study is the use of the secondary data obtained from the national bank reports, economic reports particularly on investment and financial sectors, and other data that can deliver the same topic such as the International Monetary Fund (IMF) and/or Asian Development Bank (ADB). Through the use of secondary information, the study can describe the various situations that create changes in the level of profitability of the banks. Furthermore, it is an advantage to use the secondary, especially when it is not more than five years old, because it can deliver the study to create a path of ideas regarding the strategies used and proposed by the banks to remain strong in the midst of challenges.
References:
ADB, 2007. Proposed Loan Democratic Socialist Republic of Sri Lanka: Small and Medium Enterprise Regional Development Project, Report and Recommendation of the President to the Board of Directions of Asian Development Bank. [Online] Available at: http://www.adb.org/Documents/RRPs/SRI/36117-SRI-RRP.pdf [Accessed 10 June 2010].
Focus Group, 2007. Credit Risk Management Industry Best Practices. [Online] Available at: http://www.bangladesh-bank.org/mediaroom/corerisks/creditrisks.pdf [Accessed 10 June 2010].
Le, N., & Nguyen, T., 2009. The Impact of Networking on Bank Financing: The Case of Small and Medium-Sized Enterprises in Vietnam, Theory and Practice, Vol. 33, No. 4.
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