The relationship between business model description and financial performance of selected South African banks

Abstract

The aim of this study was to explore the relationship between South Africa's top seven bank's business model description and their financial performance. Research has highlighted that there is a relationship between business models and performance, however, a limited amount of studies have provided empirical evidence to this effect. The study followed a deductive approach by firstly assessing and analysing the components of the banks business model according to the IIRC's International <IR> Framework, and then comparing the components focus of each bank for every year of this study; followed by an assessment, analyses and evaluation of each banks financial performance using the CAMELS Rating System model. Once these analyses were done for both business model description and financial performance, the study attempted to assess if the banks with the richest business model description yielded the best financial performance. The findings revealed that the banks with the richest business model description were not necessarily the best performing banks, in actual fact, these banks had low ratings for their performance, and the banks with the lowest rating for their business model description had the highest financial performance rating. However, other factors contributed to these ratings, such as some banks had low ratings for their business model description due to their business models not following the <IR> Framework. Conversely, for a more detailed and an in depth analysis and to distinguish whether there is a relationship between business model description and financial performance, the study applied correlation coefficient by using the business model description scores and financial performance components scores for each bank for the three years. The results revealed that there was a strong positive correlation between 2017 and 2018, and a weak positive correlation in 2019. This meant that indeed there was a relationship between the business model description and the bank's financial performance. While the limitations of this study have been acknowledged, the study has contributed to the knowledge of understanding the relationship between business models and financial performance in a South African context. However, further research could be conducted on more banks in order to deduct a broader view on the relationship between business model description and financial performance of South African banks. Moreover, it would be of greater significance to conduct the various analyses over a longer period of time, because with a broader scope of data, for a longer period, more conclusive findings could be possible.