Abstract

Fundamental Problems of Bank Planning with special reference to Banks in the Long-term Credit Business (I)

Planning, i.e. the conscious direction and control of operations towards a goal considered right and necessary for safeguarding existence and growth, is a characteristic element of every firm. As a process oriented to the future it is superior to improvisation, but especially for the banks it raises special problems on account of the peculiarities of bank services and the rendering of those services: - bank services are interlinked services of immaterial, abstract structure without any exactly measurable quantitative magnitudes. -- the nature and quantity of the services in demand filuctuate considerably; in their quality as service-rendering undertakings the banks are directly exposed to the impact of those fluctuations, since they cannot produce a reserve stock. The advantages of planning (early recognition of market uncertainties and reaction to their effects, and more rapid correction of the consequences of erroneous decisions) have resulted in recent years in bank managements placing greater emphasis on planning and carrying it out more systematically than formerly. However, owing to the uncertainty of forecasting it is not possible to do without improvisation as a supplementary course of action even where bank policy stresses planning. In setting up a planning system, planning should begin first in departments which - exhibit a relatively easily forecastable trend, - permit easy delimitation relative to other planning areas, - are bottleneck areas. The planning period for long-range planning, although it cannot be laid down generally for all banks, is five years as a rule; practicable short-range planning horizons begin at six months. Any period of less than three months involves not planning, but scheduling. It must further be taken into account that the principle of economy sets limits for bank planning, but quantifiable propositions concerning the cost and benefit of planning are impossible. Special factors in the case of banks engaging in long-term credits consist in the fact that owing to the narrower range of services the volume of planning tasks is smaller, but on the other hand is particularly dependent on the course of the business cycle and the trend on the capital market, so that - the greater the proportion of new business in total business, and - the greater the number of big customers, the more problematical it becomes. On account of the relatively weak ties of customers, banks in the longterm credit business are more sensitive to competition; furthermore, they cannot react so flexibly to market changes as mixed-banking institutions. Within the framework of objective planning, the objective system of a bank must be derived from its basic mission. In this connection distinctions must be drawn between security objectives (minimum objectives which are subordinate to the main objective and serve to safeguard the bank’s existence) and mission objectives, that is, objectives for the business spheres responsible for the public mission. Mission objectives may be superseded temporarily, if attainment of the security objectives appear to be jeopardized.