Dear scholar make your question clear by giving some more details so that other scholars can offer proper answer to the question.

I agree with Bhag. It is not easy to interpret your question. But to offer help if I can ... efficiency in any organisation can be considered with return on capital employed (ROCE). In the case of banks, I would also consider net interest margin, which is the difference between the margin they achieve on lending in aggregate versus the margin they pay on borrowings in aggregate. The higher the margin, the more efficient the bank.

Dear maan, since the banks are allowed to invest in securities paper, there are some problems found related to bank efficiency :

1. Banks always use the securities paper as alternative investment to increase the income. They expect capital gain and high interest rate. Ofcourse it is the risk because of volatility. Remember the risk of high yield bonds. It will influence the efficiency because it can reduce LDR and CAR.

2. The funny things are that the banks are very active to increase trading volume and repurchase agreement to increase the non interest rate income. The risk here is if the dealing desk could not resell the securities paper it means that the bank must recognize that as the asset in statement of financial position. Of course the banks have to recognize the market price, especially if they use IFRS article as the asset valuation policy, marked to market.

So i can say that the trading or investment in securities paper make the bank in the risk but sometimes it is also sugar for the banks.

Where securities and investment trading are active and robust the return or profit are bound to be high. Investors are more encouraged to move their funds to the capital market. This will invariably after the funds that are left with the banking sector. This will affect the cost of funds and quantity availability, hence the effect on efficiency of the banking industry.

The additional, if the banks buy more high yield bonds and mutual fund, it will cause the interest rate difficult to decline. And it can increase the inflation rate, the effect is the interest rate is difficult to press down. Look at the case in USA current time. The banks has no liquidity because they put the liabilities in to capital market.

Trading income does not arise in a banking institution unless you are referring to foreign exchange trading income and income from investment securities.

In many developing countries, foreign exchange trading income add-up a large portion to the aggregate income of a bank or banks. Similarly, the income from investment securities can also be sizeable, especially in a well diversified banking company. In the same vein the transactions - investing bank fund in these two business lines (products) may also impact adversely on operating profit, asset & liability management, continued existence of banks. Yes, they can contribute to banks efficiency and down fall (collapse) of banks. You need to adopt some profound performance measuring metrics to establish whether incomes from trading and treasury investment securities added to bank's operating efficiency or otherwise

CE Alozie

Thank you so much everyone your efforts are really appreciated. I am sorry for not giving a clear question but I will learn from this mistake and do better. Thank you again and I hope you guys continue to help me. God bless ;)

You are appreciated