CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

A commercial bank is a business entity engaged in banking operations for the purpose of making a profit in the short term as well as the long term. Just like every other business, they generate income and expenses, thus the need to make profits requires attention to costs incurred and revenue generated tied to the aspect of pricing of its services.

Ten years after the 2008 global financial crisis, the profit margins of banks in advanced economies remain at historically low levels. The reason is simple: costs have been growing faster than revenues. Banks’ average return on equity has fallen to unsustainably low levels, especially in Europe. Banks urgently need to act if they want to increase their profit margins. Because boosting revenue in the current environment will be difficult, banks must slash their costs. This will require simplifying offerings, digitizing operations, pursuing low-cost organic growth, and building scale through mergers/acquisitions (M&A) and partnerships (www.bcg.com/publications/2017). In P. Batey and M. M. Nanje. (2022) The Compendium, cost accounting is a measure of the company’s economic performance carried out in the form of cost ascertainment and cost control applying costing methods like job costing, batch costing, contract costing and process costing. Costing involves indicating to the management of the economic consequences of carrying out any specified activity in the enterprise whereas cost is the value of economic resources used as a result of producing goods and services.N. Abdusalomova (2017) abstracts that cost accounting is an emerging trend of business accounting in developing economies wherein, deep-in-root accounting reforms and advances in business climate involve the cost accounting techniques which could embrace technological, market and financial healthiness factors of a business. In addition, according to a European Research Studies Journal, Volume XXI, Special Issue 2, 2018, on the Nature and Classification of Costs of a Commercial Bank, the calculation of the financial results of a modern commercial bank is based on a reasonable classification and the formation of an actual cost structure.

1.2 STATEMENT OF THE PROBLEM

In this challenging environment, cost accounting remains a strong imperative for the entire global banking industry (www2.deloitte.com/us/en/pages). It is a critical aspect of maintaining profitability and competitiveness in the banking industry.

For a company to successfully manage its finances, accurate cost accounting is a critical component of the process. It is possible that the lack of a cost accounting system or the use of an ineffective cost accounting system is the root cause of a company’s lack of success and earnings.

This research therefore will attempt to addressthe much-neededcost accounting practicesincluding cost classification/analysis and applicable costing methods and assess the extent to which the cost accounting practices are applied as well asinfluence economic performance of Commercial banks and their branches/departments in Cameroon.

1.3 RESEARCH QUESTION.

Considering the problems mentioned in section 1.1 above, this research paper will attempt to answer the following questions.

1.3.1 Main Research Question

–           To what extentdoes cost accounting practices affect the economic performance of a commercial bank and its branches/departments in Cameroon?

1.3.2 Specific Research Questions

–           Do commercial banks need cost accounting practices to enhance business performance?

–           Do they employ cost accounting practices?

–           What are the various methods of cost accounting employed?

–           How does the practice ofcost accountingcontribute to the economic performance of a commercial bank and its entities/departments in Cameroon.

–           To what extent can applied costing methods affect the economic performance of a commercial bank and its entities/branches in Cameroon?

1.4 OBJECTIVES OF THE STUDY

1.4.1 Main Objective

The primary objective of this research is to assess the effect of cost accounting on the financial performance of commercial banks in Cameroon. To achieve this overarching goal, the study will pursue the following:

1.4.2 Specific Objectives

To evaluate the impact of cost accounting practices on the cost efficiency and operational performance of commercial banks in Cameroon.

To assess how cost accounting information influences the strategic decision-making processes within commercial banks in Cameroon.

To determine the extent to which effective cost accounting contributes to the overall financial performance and profitability of commercial banks in Cameroon.

By addressing these objectives, the research aims to provide a comprehensive understanding of the role of cost accounting in shaping the financial performance of commercial banks in Cameroon, ultimately contributing to the development of informed strategies and practices within the banking sector.

1.5 RESEARCH HYPOTHESIS

Based on the research questions and the existing literature, the following hypotheses will be tested in the proposed study:

Null Hypothesis (H0): There is no significant relationship between the adoption of cost accounting practices and the financial performance of commercial banks in Cameroon.

Alternative Hypothesis (H1): There is a significant relationship between the adoption of cost accounting practices and the financial performance of commercial banks in Cameroon.

Null Hypothesis (H0): Cost accounting information does not significantly influence the strategic decision-making processes within commercial banks in Cameroon.

Alternative Hypothesis (H1): Cost accounting information significantly influences the strategic decision-making processes within commercial banks in Cameroon.

Null Hypothesis (H0): Effective cost accounting does not significantly contribute to the overall financial performance and profitability of commercial banks in Cameroon.

Alternative Hypothesis (H1): Effective cost accounting significantly contributes to the overall financial performance and profitability of commercial banks in Cameroon.

By testing these hypotheses, the study aims to provide empirical evidence regarding the impact of cost accounting on the financial performance of commercial banks in Cameroon.