banking

Note: Sample Data 2006
BankingFigure 4.1
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Figure 4.1

Banking

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BankingFigure 4.2
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Figure 4.2

BankingFigure 4.3
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Figure 4.3

Macroeconomic Factors

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Ideally, in the decade ahead, a climate of moderate economic growth without severe or long-lasting  recessions would obviously be conducive to the strong growth and profitability of the banking industry. In such a climate, bank failures would be few in number, typically caused by managerial and internal control weaknesses, excessive risk taking, or fraud, rather than by broader economic forces.However, the economy is not immune to speculative bubbles like those occurring in the energy, commercial real estate, and agriculture sectors in the 1980s and in 2008, which were among the causes of the wave of bank failures during that period.

Boom-and-bust conditions in markets in which banks participate could once again produce a significant number of failures caused by economic conditions. The banking industry has grown stronger over the last decade, and geographic diversification has reduced many bank’s vulnerability to local economic disturbances, and bank supervision has been strengthened.

Worldwide growth of gross domestic product (GDP) and sound fiscal policy are essential for the financial services sector to function properly and develop. Higher GDP growth means more available money for loans and other fund-based services. The banking sector plays a central role in the financial industry. In a well-managed economy, the vulnerability of banks is reduced, as interest rates are managed and liquidity risks kept under control.

The global economy grew by 3.2% in 2005. GDP in the Central and Eastern European countries over the next 15 years is projected to grow more quickly over the next 15 years, compared with the last 10 years. Monetary policy has remained stable in Europe and Central Asia, where the real GDP growth of both regions combined fell by 27.15% to 5.26% in 2005 (Figure 4.1) . South Asia’s real GDP growth was estimated at 6.9% in 2005, slightly higher than 6.75% in 2004 (Figure 4.2) .

Economies in the region encompassing East Asia and the Pacific region continued to expand rapidly in 2005, though real GDP growth decreased to 7.8%, down from 8.3% in 2004 (Figure 4.3) . Growth in China remained very strong, although consumption was slow due to continued growth  in exports against a 50% decline in imports. Between 2006 and 2015, regional per capita incomes are projected to continue their rapid rise at an estimated rate of 5.3% a year.

India, East Asia’s largest economy, had a stable growth at about 7.0%, while Pakistan accelerated from 5.8% to 6.6%. The region’s smaller economies however decelerated from 5.9% to 5.1%. Long-term growth in South Asia is forecast at 5% from 2007 to 2015, reflecting a rising contribution to growth by the private sector.

The GDP growth rate of the majority of the economies in the world came down in 2008 and 2009, thereby shattering the global banking industry. However in 2010, it was predicted that the major economies of the world will again experience an increase in the GDP rates, which is expected to strengthen the banking industry.


Businesses of Commercial Banks

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Commercial banks have two major businesses: consumer banking and wholesale banking. Consumer banking includes deposits, savings, personal loans, bankcards, mortgages, auto finance, and payments; wholesale banking includes commercial lending, cash management, trade finance, treasury products, and securities processing. Banks are now trying to find ways of cross selling products between businesses areas in order to realize untapped business potential.

Globalization

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For banks, globalization provides opportunities to access to foreign capital, and global markets to sell their products and services and advanced technology. Globalization expands economic freedom and competition, as well as improving operations, leading to faster growth in banking.

According to the Indian Banks’ Association report ‘Banking Industry Vision 2010’, there will be an increasing presence of international players in the Indian financial system, and some Indian banks may well become global players in the coming years. So, the Indian banking industry is now striving to internationalize its operations in search of new markets, customers and  profits.

Deregulation

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The global deregulation of the banking industry allows banks in various countries to offer a variety of financial and insurance products that they were once prohibited from selling. The repeal of the Glass Steagall Act with the Gramm-Leach-Bliley Act of 1999, allowed US banks to enter the financial services sector. Large banking companies took quick advantage of this legislation to expand into non-traditional activities such as investment banking, insurance, mortgages, securities underwriting, and retail brokerage. This in turn triggered conglomeration. While deregulation has opened up new arenas for banks to increase their revenues, it is accompanied by greater competition and therefore greater risks. Deregulation of the banking industry in the US has removed a host of restrictions that had stunted its evolution, restricted the efficiency of the financial product markets, and extended the lives of thousands of poorly run and undersized commercial banks. Through financial deregulation banks are now facing more competition than ever before, forcing banks to make strategic changes to their business models.

The removal of regulation-Q interest rate ceilings allowed banks to pay market interest rates to depositors. In the past, banks offered bundled the pricing of retail products in order to compensate depositors for below market interest rates. Typically, banks would provide a bundle including check printing, safety deposit boxes, and traveler’s checks. With the repeal of regulation-Q, banks abandoned bundling products and started paying market rates of interest, curtailing the trend towards disintermediation.

It is hoped that deregulation will lead to a raised level of competitiveness, and higher productivity and efficiency in the banking industry.

Technological Development

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IT has increasingly affected the role of banks in financial markets and precipitated changes in the structure and performance of the global banking industry. IT has evolved from providing a purely supportive function to being a key component of strategy. Banks IT investment has continued to increase in recent years, with customer analytics emerging as a key area. Emerging technologies in 2005 included grid computing, visualization data, service-oriented architectures, storage and predictive intelligence. IN 2005, e-Banking was synonymous with e-commerce in many developing countries, triggering a tremendous growth potential for technology oriented commercial banks.

European banks have maintained their quantitative and qualitative leadership over their US counterparts in Internet banking. Only Wells Fargo in the US has gone against this trend by attracting 3 million customers. In Europe at least three banks claim a higher customer count: Nordea, Barclays and ING. European banks offer a broader range of services than US banks, taking advantage of a regulatory framework that supports ‘Universal Banking’ and ‘Bank-Insurance’ models. Internet banking has played a fundamental role for European banks, particularly the market leaders, in achieving trans-border deployment and delivery capacity.

Information Technology (IT) is central to the financial industry and it spends the most on IT – around USD500 billion globally. In 2009, the global financial industry was expected to spend USD503 billion on IT.


IT has increasingly affected the role of banks in financial markets and precipitated changes in the structure and performance of the global banking industry. IT has evolved from providing a purely supportive function to being a key component of strategy. Banks IT investment has continued to increase in recent years, with customer analytics emerging as a key area. Emerging technologies include, e-banking, Customer Relation Management (CRM) solutions, data warehousing and risk assessment technologies.


Retail Banking

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The role played by retail banking in augmenting revenue should not be undervalued. Various factors have driven retail banking to the fore. Compared with wholesale banking and securities trading, retail banking offers a relatively stable revenue stream. Globally banks are beginning to realize the untapped opportunities provided by retail banking, increasing their spending on the retail banking technologies in order to improve existing products and services and simultaneously introduce new ones in order to better.

Retail banking is less cyclical than other banking businesses, such as wholesale banking or investment banking. It requires lower regulatory capital and is less risky, due to a higher degree of diversification compared with corporate lending. With interest rates remaining low, there has been a surge in demand for retail loans. Most banks have at least made inroads into the housing loans business, and banks that are already well established in this segment have increased their market share in recent years. Although retail banking is competitive, it offers better margins and a lesser incidence of bad debts. Thanks to consumerism and the growing culture of borrowing, retail banking has the potential to be a highly profitable business area for banks.

The retail banking industry was battered by the global financial crisis in 2009 and started recovering the late 2010. However the role played by retail banking in augmenting revenue should not be undervalued. Various factors have driven retail banking to force. Compared with wholesale banking and securities trading, retail banking offers a relatively stable revenue stream.


Despite the global financial crises in 2009, the retail share of all global banking revenues rose to 52% in that year , as people always need basic banking services, and  retail banking is less cyclical than other banking businesses, such as wholesale banking or investment banking.  Globally banks are beginning to realize the untapped opportunities provided by retail banking, increasing their spending on the retail banking technologies in order to improve existing products and services and simultaneously introduce new ones in order to better.


Marketing

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With most banks offering a huge array of products and services to customers, outstanding customer services and innovative products and services tend to be key areas in which players can truly differentiate themselves from their competitors. Marketing also helps banks to brand their products and services in order to develop new consumer perceptions of a bank’s identity and services, potentially changing the attitude of a customer towards their products.

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