Moving up the graph in productivity

The conceptual and empirical problems that plague the measurement of physical output in most service industries are particularly acute in the banking sector, where there is no clear consensus on an appropriate definition of output (Triplett 1990). For example, since banks engage in intermediation, are their deposits to be measured as an input or an output?

In a service industry like banking, the various products include
• Deposits raised
• Resources deployed as credit and investment
• The services rendered to the depositors, borrowers and others who utilize banking services for guarantees
• Letters of credit
• Foreign exchange remittances
• Drafts
• Traveler cheques
• Credit cards
• Pension payments and
• Issue management

While it is not possible to bring all the various services to measure the output of a banking institution, the bank balance sheets provide distinct information that can be accepted for output measurement. At present, banks measure productivity as a ratio of manpower to business volume, namely the deposits plus advances. The resultant ratio however does not reflect fully the wide range of services delivered by the banks.

The most common response to this problem is to examine the indicators of productivity in the banking sector that are generally derived from accounting data. While some banks have shown a general decline in productivity, financing institutions like the LoanMax of the rod aycox fame have moved up the graph in productivity.