Defining Performance – Heritage Bank

Posted: August 26th, 2021

Defining Performance

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Defining Performance – Heritage Bank

Executive Summary

Several financial parameters are used to define an organization’s performance over time to evaluate its relevance in the industry and return to the shareholders. The metrics that define a bank’s performance include customer base, loan book, financial performance, and competitive advantage. Therefore, the paper focused on evaluating the performance of the Heritage Bank of Commerce, an Australian commercial bank. The bank’s headquarter is located at 86 Mosman Street, Charters Towers Region, Queensland, Australia. It is abbreviated as HBC. The analysis provided an in-depth evaluation of the bank’s organizational structure and performance.

Organizational Analysis

HBC is the largest Australian bank by customer base and among the most significant mutual ADIs financial institutions in the country. The bank’s history dates back to one hundred and forty-two years ago when it commenced building society in Toowoomba in 1875 (Heritage Bank, 2020). Thus, it is one of the oldest banks in Australia. It has grown tremendously to approximately ten billion dollars in assets capacity with over eight hundred and twenty employees. The bank covers a customer base of about three hundred and seven thousand across the country. Besides, it has sixty branches in New South Wales and southern Queensland (Heritage Bank, 2020). More so, HBC activities commercial activities are distributed across various sectors, including business, agribusiness, and retail banking services. It has also penetrated the insurance market, financial planning, and superannuation services. Thus, it is one of the key players in the financial market, especially the mortgage industry, where it has customers across the country through its distributed networks.

Additionally, HBC is a leading bank in capital and asset management within the mutual sector. According to the bank’s financial report 2018, the company completed numerous industry-first transactions and several innovations. Among the notable accomplishments in the last ten years include becoming Basel II compliant in October 2009 and completing Australian Security Exchange (ASX) listings. Recently the bank was issued with Basel III compliant after the Australian Prudential Regulatory Authority (APPRA) changed it from tier two after it satisfied subordinated debt issue in non-viability provisions. Therefore, the bank has gained a competitive edge through the institutionalizing of unique insights that enable capital issuance by financial institutions.

Define Performance

According to Abualoush et al. (2018), bank performance reflects how effectively resources are used to achieve its objectives. Banks need to have effective operations as they are a vital segment of the economy mandated forensuring efficient and healthy financial systems(Verhoef, et al., 2019). Equally, banks help other businesses by providing products and services such as loan facilities that assist the overall economic growth. However, banks offer identical services, and it is necessary to define individual performances to equate their role in business development and overall financial conditions (Verhoef et al., 2019). Hence, HBC performance can be defined in terms of products and customer base, financial performance, and competitive advantage, as discussed below.

Evaluation of products and customers’ based reveals that HBC offers an array of products and services, ranging from banking services, loan products, and insurance services. It has diversified in the loan sector to include home, personal, and business loan facilities. The mortgages under home loans are tailor-made according to the customers’ specifications, principal amount, and the repayment period. As such, this has made given the bank a competitive approach in the commercial market of Australia (Heritage Bank, 2020). The bank has a strong customer base of 370,000 customers, making it the largest financial institution in Australia. Besides, it was recognized recently as the number one bank in Australia on the Forbes list of World’s Best Banks because being effective, innovative, and customer-focused. Therefore, HBCperformances are widely attributed to growth in the mortgage and mutual funds sectors, where it has since stabilized to become one of the leading banks in the country.

Regarding financial performance, the company has strong financial performance indicated by its member’s annual reports. In 2019, the company’s financial metrics indicated to have improved as compared to 2018. The critical areas noted in the report are loan approvals, total consolidated assets, liquidity, capital adequacy, and mortgage collection (Member Report, 2020). However, the net profit and mortgage arrears slightly declined according to 2018 and 2019 reports. The loan approvals increased from $1.736 billion in 2018 to $ 1.880 billion in 2019. The total consolidated assets also rose from $9.524 billion in 2018 to $10.088 billion in 2019.  Further, the capital adequacy improved from 14.11% in 2018 to 14.42% in 2019. The same trend was realized in the bank’s liquidity given by the division of current assets and liabilities, which increased from 14.74% to 15.50% in 2018 and 2019, respectively (Member Report, 2020). However, the mortgage loan arrears that were higher than thirty days increased from 0.58% in 2018 to 0.66% in 2019. Thus, the overall profit after tax for the company declined from $64.213 million in 2018 to $61.708 million in 2019. This subsequently reduced the profit after tax from $45.041 million in 2018 to $43.275 million in 2019.

Finally, the bank’s competitive advantages are demonstrated through operational efficiency, as noted in its massive customer base, innovation, and variety of products and services. Besides, the company has a customer service center that operates all day 24/7, which helps in more straightforward dispute resolution and queries even when the bank branches have closed.  At the same time, high efficiency in customer service offers the bank a robust competitive edge leading to cost cuts, thereby giving the bank incentive for attracting a vast and large number of customers (Oppong & Pattanayak, 2019). Therefore, the bank’s competitive advantage is realized in offering quality customer-centered products, sustaining excellent customer services, providing cost-effective mortgage products compared to its rivals. Accessibility is also enhanced through widely distributed branches across the country, enhancing geographical convenience (Setyawati et al., 2019). More so, the company uses branding strategy to design its products better than other banks such as internet banking, credit facilities, and credit cards, and banking services that make the customers easily differentiate and relate with the products against the rivals. Thus, these strategies have made HBC one of the most advanced, strategically competitive, and the most competitive financial institution in Australia.

Conclusion

Defining performance is a crucial aspect of understanding an organization’s state besides highlighting relevant underlying issues that are essential in defining its direction. As reveals in the evaluation, the examination of HBC illustrates how the bank has defined its performance within its industry. Notably, the assessment demonstrates the bank’s product and customer base performances, financial and respective competitiveness that has put it at the helm of leading commercial banks in Australia. Thus, the analysis shows that the bank has been increasingly performing well in the market based on its defined areas of focus.

References

Abualoush, S., Masa’deh, R. E., Bataineh, K., & Alrowwad, A. (2018). The knowledge management process and intellectual capital are intermediary variables between knowledge management infrastructure and organization performance. Interdisciplinary Journal of Information, Knowledge, and Management, 13, 279-309.

Heritage Bank. (2020). Heritage Bank: Home Loans, Credit Cards, and Term Deposits. Heritage.com.au. Retrieved 8 August 2020, from https://www.heritage.com.au/.

Member Report. (2020). Member Report Heritage Bank. Heritage.com.au. Retrieved 8 August 2020, from https://www.heritage.com.au/-/media/m/publications/reports/customer-and-financial-reports/member-report-from-2018-19.pdf.

Oppong, G. K., & Pattanayak, J. K. (2019). Does investing in intellectual capital improve productivity? Panel evidence from commercial banks in India. Borsa Istanbul Review, 19(3), 219-227.

Setyawati, I., Widyastuti, T., Suryati, A., & Hartani, N. (2019). Intellectual capital performanceof Islamic banks in Indonesia: Towards competitive advantages. Management Science Letters, 9(12), 1999-2008.

Verhoef, P. C., Broekhuizen, T., Bart, Y., Bhattacharya, A., Dong, J. Q., Fabian, N., & Haenlein, M. (2019). Digital transformation: A multidisciplinary reflection and research agenda. Journal of Business Research.