Investigating the effectiveness of a particular bank, it is quite objective and appropriate to use the BCG matrix (matrix "growth - market share").
This approach allows you to get a simple rating of banks on the basis of their success in the banking market. Such classification of banks into groups can help determine the appropriate strategy to achieve leadership positions or profitability of an individual bank.
Classification according to BCG matrix:
Table 1
| RMS/GR* | Low | High |
|---|---|---|
| High | Cow | Star |
| Low | Dog | Question Mark |
where, GR is the growth rate calculated by formula (1), RMS is the relative market share, as an example: the ratio of own income / loss to profit / loss of the strongest competitor. Value 1 means that the bank is the leader in the segment in the relevant segment market:
Gross Rate is calculated (1):
where, $f(x_i,t_1)$ – the value $x_i$ for the current period, $f(x_i,t_0)$ – is the value of $x_i$ for the base period.
Relative Market Share (RMS) is calculated (2):
where, $x_{et}$ – is the value of an indicator, for example, the income / loss of the strongest competitor: for loss $x_{et}∈[min(x_i);0)$, for income $x_{et}∈(0;max(x_i )]$.
Interpretation of bank classification: "Stars" - High revenue/assets growth and high market share. Market share needs to be maintained and increased. "Stars" bring very big profits or share. Net cash flow is quite low because it requires significant investment to ensure a high growth rate.
"Dairy cows" - a high market share, but low revenue/assets growth. "Dairy cows" must be protected and controlled as much as possible. Their attractiveness is due to the fact that they do not require additional investment and at the same time provide a good monetary return.
"Dogs" - the growth rate is low, market share is low, the business structure is usually low profitability and requires a lot of attention from the manager. Dogs need to be disposed of.
"Question marks" ("Problem") - low market share, but high growth rates. "Heavy children" need to be studied. In the long run, they can become both stars or dogs. If there is a possibility of transfer to the stars, you need to invest, otherwise - get rid of.