BUSINESS REPORT
Introduction
The main goal of this paper is to provide a forecast for Real GDP of Malaysia for 2005, the loan growth of the Malaysian banking industry and the selected Malaysian Bank. In this particular case, the Bank selected is Bank Negara.
Linear Regression Model
Real GDP of Malaysia and Loan Growth of Banking System
The following tables show the linear regression result for the Real GDP of Malaysia and Loan Growth of Banking System.
It shows that the two variables have positive correlation. Herein, it can be concluded that Real GDO and Loan Growth of banking system of Malaysia has a moderately high correlation. This implies that the variable can be used as an indicator for identifying the growth of the Malaysia.
It shows that the two variables have negative correlation. This indicates that the two variables have a negligible correlation. This means that Real GDP of Malaysia and the Loan Growth of Bank Negara have a small relationship to be used as an indicator. It also implies that both variables are not a good factor for determining the growth of the bank. This means that when the growth of the Real GD increases, the growth of Bank Negara for loan growth decreases or vice versa.
Method of Least Squares
Since this paper aims to determine or forecasts the 2005 Real GDP growth of Malaysia, the loan growth of Malaysian Banking industry as well as the Loan growth of Bank Negara the use of Method of Least Squares was performed Basically, if a straight line assured, the line of trend will have a formula:
In this formula the value of and must be determined. The principle of least square, states that a trend best fit a given set of values when the constants of the equation are chosen so that the sum of the squares of the deviations between the original data and the corresponding trend values are a minimum. If the line fits the data perfectly, each point will lie on the line and the sum of the squares of the deviations will be zero. The farther the points are from the trend, the larger will the deviations, although the line may still be fitted so that these squared deviations will be a minimum.
In order to find these values for and by the method of least squares, it is necessary to solve the following normal equations in which time is designated by X and the values in the series by Y.
The procedure may be simplified by arbitrarily shifting the origin of the series ( in the middle year for an odd number of years between the two centre years for an even number of years) in this way so that , the preceding equation can be reduced to
After the values of a and b are determined, it then becomes possible with the use of the equation,, to compute the actual trend values.
Let’s try to consider the given data below for Real GDP
Limitations of the Forecasting Model
Actually, forecasting, by professional, is too frequently a guessing game. Even when forecasters agree, they are apt to reach their common conclusion by different methods and for different reasons. And when they happen to be right, they are frequently right because of reasons or conditions they did not anticipate. In connection to this, the use of Least Square Method was employed in order to forecasts the Malaysian real GDP, loan growth of the banking sector and the selected banking sector for 2005. Furthermore, it is suggested that the use of other forecasting technique should also be considered since unorganised forecasting is usually the product of personal judgment or intuition or, sometimes, only a subconscious feeling for the course of future events. It is more art than science, and it will remain in this unsatisfactory state until its methods can be brought into the realm of the rational and can be based on logical relationships that govern banking behavior and can be stated in measurable terms.
The main weakness of the least squares methods can be attributed to the shape of the linear models. Herein, the shapes may have the possibility to have a poor extrapolation properties and sensitive to outliers. In addition, while the method often provides optimal estimates of the unknown parameters, it is very susceptible to the presence of unusual data given in a data utilised to fit a certain model.
With this weakness it can be said that the result of the analysis does not constitute a strong reliability. Hence, it is suggested that the forecaster should be able to use other methods suitable for this case in order to determine if there is a discrepancy or whether this method us reliable or not.
Conclusion and Recommendation
As can be seen at the computation, the Real GDP of Malaysia and the loan growth of the banking industry in the nation has a positive and moderately high correlation. This means that whenever the GDP increases there is a greater possibility of having an increasing loan growth. On the other hand, the Real GDP of Malaysia and loan growth of the selected bank has a negative correlation. As mentioned above, when the Real GDP decreases, loan growth of Bank Negara increases or vice versa. The use of least squares method for forecasting the growth of Real GDP, loan growth of Malaysian banking industry and loan growth of bank Negara for the year 2005.
Meanwhile, the bank of Negara should be able to management its business operations and financial performance well to achieve growth in terms of Loan. Business management is the functional application of marketing techniques. It refers to the analysis, planning, implementation, and control of programs designed to create, build, and maintain mutually beneficial exchanges with target markets. The bank selected must be able to use all its resources and maximise key indicators to be able to achieve a high loan growth for year 2005.
Credit:ivythesis.typepad.com
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