Academic journal article Journal of Financial Management & Analysis

Budgetary Practices in the Banking Sector in Bahrain Empirical Research Findings

Academic journal article Journal of Financial Management & Analysis

Budgetary Practices in the Banking Sector in Bahrain Empirical Research Findings

Article excerpt

exercise as an important activity, a key part of their management planning. Apparently, this is further substantiated from the fact that about 92 per cent of the banks surveyed claimed to have a budget committee. The members of this committee as listed by banks consists of general manager (100 per cent); financial controller (83 per cent); budget officer (25 per cent); personnel manager (50 per cent); marketing manager (42 per cent). The most interesting of all, only 17 per cent of the banks listed chief accountants as a member of budget committee. Further, about 75 per cent of banks indicate to have a separate department responsible for preparing budgets. Only 11 per cent of this 75 per cent claimed to have no budget committee. This goes without saying that even though banks do not have a budget committee, they do regard budget preparation important enough to have a particular department responsible for preparing budgets.

When the banks were asked about the main reasons for preparing budgets, it is interesting to note that more than 67 per cent of them indicate that the main reasons for preparing budgets are to determine and improve net profits, followed by computation of cost-income ratio (58 per cent). Other reasons cited are computation of return on assets, return on equity (50 per cent), and net interest (42 per cent).

Purposes of Budget Preparation: Evidence is there in the literature to indicate that budgets serve multiple objectives and functions (e.g., Joshi'4, Drury",). They may serve as a formal authorization to a manager to spend a given amount of money on specific activities; a tool for forecasting and planning; to judge and control performance; a way to calculate rewards, and to motivate employees. Therefore, this study addressed these questions to the respondents. Responses are presented in Table 1.

A perusal of Table 1 indicates that 42 per cent of the respondents claim that their banks regard budgets very important for forecasting the future. However, a higher percentage of managers think more importance should be placed to this purpose of the budget. About 42 per cent also state that their banks regard budgets very important for assisting in profit maximization. However. the respondents emphasize that their banks should give more importance to this purpose of budget. In fact, they (67 per cent) regard this purpose, the most important one. On the other hand, bank managers do not consider that budget serves very important means of management communication. Only 33 per cent rate budget as an important tool of management communication. This is contrary to the theory, as Wilson and Chua 14 point out that, the budget is one of the most important communication devices within an organization and is intimately related to the process of organization control.l5

The reason given by the respondents is that there are several other means of management communication, and the budget is one of them. On the other hand, about 42 percent of the banks state that their management regard judging performance as one of the very important purposes of the budgets. At the same time, they stress that more importance should be attached to it in the future However, low importance is assigned to budget as a means to motivate and reward people. Of course, those interviewed agree that high importance need to be attached to these purposes; the findings are contrary to empirical evidence in case of manufacturing type of organizations in which case it is amply proved that budgets do serve the purpose of motivating people. Budget Components

The budget planning and control program rests upon a sound organizational structure and on a clear cut line of authority and responsibility. Therefore, a comprehensive budget is usually segregated into different components so that every department is responsible for their own portion of budget implementation and achievements. Due to the nature of operations of the banks, being service organizations, the components of the master budget will naturally be different than from those of manufacturing or merchandising organizations. …

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