Banking Overview Final

8/9/2019 Banking Overview Final

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BANKING SECTOR-

AN OVERVIEW

SYED ASAD RAZAHBL


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BANKING Competitive market

structureThree principal dimensions

Client (C- dimension)Arena (A - dimension)

Product (P-dimension)


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Client: Sovereign, Corporate, Financial

Services, Private, Retail Arena: onshore or offshore (each arena

is characterised by different risk/return

profile, levels of financial efficiency,regulatory conditions, client needs,etc)

Product: Credit products, Financialengineering products, risk management

products, arbitrage, etc.


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Scope-related linkages across commercial and investmentbanking


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Summary: C-A-P

To analyse the size and durability of excess

returns associated with individual segmentsof domestic and international financialmarkets by applying market structureanalysis.

To analyse the linkages that exist betweendifferent types of financial services(economies of scope).

To identify appropriate public policies towardthe financial services industry in structure-conduct-performance context.

To identify market characteristics and firm

specific advantages.


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Capital Adequacy Objective

Difference between funding and capital

Concept of capital management.

Why do banks hold capital?

Why are capital levels important?


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Historical review

Till the late 1970s, banks highly regulatedand protected entities.

Banks protected from competitive forces.

Strict control over the issue of bankinglicences.

Interest rate ceilings on deposits, etc.

Basel Committee on Banking Regulationand Supervisory Practices (BIS)


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Why?The liability side of the balance sheet (ina financial institution) does not exitpurely to fund the activities of the bank,but is itself part of the banks activities.

The role of capital is to act as a buffer

against future, unidentified, evenrelatively improbable losses.


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Thus:

The amount held or required to be heldby a financial institution to underpin therisk of loss in value of exposure,business etc., so as to protect thedepositors and general creditors against

loss.


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How much capital does a bank

need?


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Regulatory capital as an indicator of

bank soundness


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Capital level determination

The following factors:

the level of capital that is consistent witha given credit rating

appropriate vis--vis an internalassessment of of the capital at risk

a margin for error needs to be built intobusiness plan. A regulatory capitalshortfall serious consequences.


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Does efficient capital allocation work?

Bank can optimise the relationshipbetween return and capital by:

1. Increasing the amount of return earnedper$ of capital

2. Decreasing the amount of capitalrequired per $ of return.


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Capital: an important part ofmanaging

bank

Do not forget that the bank capital isspecial: to absorb financial risk!!!

Although the banking more fee-basedincome source still far way from a banking

industry which no longer acts as a riskintermediator.


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Four Views of Capital1. The treasurers view:

- What Capital is available?

- What instrument exist to raise capital?

- How can we manage the available base tomeet requirements?

- How should we invest the funds raised?


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2. The regulators view:

- Does the Bank have enough capital toprotect the depositors and othercreditors against loss?

3. The risk managers view:

- What does the risk profile of the banks

positions say about the potential size ofloss?


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4. The shareholders view:

- What returns are being earned on thefunds invested?

- Is the risk of the activities undertaken

properly compensated in the form of thereturns generated for shareholders?

A different view a different definition ofcapital.


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BRANCH BANKING REVOLUTION>>>


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Branch network development


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The Impact of technology on the

delivery of financial services Advancements in technology have had a

profound effect on the delivery of financial

services over the last few decades. Technology was first used in the branches of

banks and building societies as a means ofreducing the cost of many routine processes,

through centralisation and automation. Now it provides a cost-effective and

competitive solution to the delivery of products and communication with customers.


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Technology driven delivery methods


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Automatic teller machines (ATMs) have hadan important role to play in terms of

automating routine services.- increasing customer convenience

- accessibility to financial institutions

- providing an innovative method of communicating new products and services.

While investment in ATMs has been quite

substantial in the past, evidence suggeststhat they will receive less attention in thefuture compared with other forms of deliverysuch as telephone and on-line banking.


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ATMs do not allow a dialogue to beestablished with the customer compared with other forms of deliverywhere person-to-person contact may bepossible.

ATMs may be viewed as either a

delivery channel or a product in their own right. They do exhibit qualities ofboth, and current pricing structures tend

to reflect both these considerations.


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Electronic funds transfer at point of sale

(EFTPOS) is essentially a payment system,although it may be described as a deliverychannel. It is worthy of mention because ofthe impact it has had on money transmission.

Since the introduction of EFTPOS, retailershave been placed in a stronger position in

terms of money transmission and, throughthe provision of 'cash-back' facilities havereduced the need for customers to visit eithera branch or an ATM to withdraw cash from

their accounts.


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Telebanking, conducting one's financialaccounts over the telephone, hasincreased dramatically in popularityConsumers seem to be willing to

conduct almost all transactions over thetelephone.


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The acceptance of the Internet by thepublic has been extremely rapid,especially in comparison to othertechnological developments.

'Penetration and acceptance of the

Internet and associated networks havebeen very rapid. It took 38 years for theradio to achieve widespread mass use,13 years for the television, and 16 years

for the PC but only four years for theInternet (once it was opened to thegeneral public)'.


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The concept of Internet banking is wherebyconsumers can access their accounts and

conduct business online that they wouldpreviously had have done in a branch.(This can include the setting up of a loan,transferring savings from one account to

another, setting up direct debits, etc).

The first true Internet bank was SecurityFirst Network Bank (SFNB),that was

established in 1995 in Atlanta, providingconsumers with unlimited third-party billpaying, web-based balance lookup, fundstransfers and loans.


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Number of Banks and Credit UnionsOffering Online Services

Year Number of banks

and Credit

Institutions

% of Market

1998 1,200 6%

1999 8,400 42%

2000 12,000 61.3%

2003 15,845 75%


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During the mid to late 1990's Internet trafficdoubled every 100 days, and continues to

accelerate;

In 1995 there were approximately 350MMand by 2005 is expected to reach over

750MM. During 2002, 7.2 million people paid bills or

transferred funds in this way, 44% more thanin 2001In total, 72 million payments were

made online last year. People paying theircredit cards accounted for more than half ofthese.


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BRANCH BANKING

PROFITABILITY A FUNCTIONOF DEPOSIT BUSINESS

PRODUCTS CLIENTS TIERS

MARKETING STRATEGIES

ORGAN STRUCTURE

CAREER PROSPECTS


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DEPOSIT PRODUCTS

SAVINGS

CURRENT

DAILY

TERM DEPOSIT

FC NEW SCHEMES>>


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OTHER PRODUCTS

PERSONAL LOANS

AUTO LOANS

CREDIT CARD


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CLIENT TIERS

INDIVIDUALS

RETAILS

COMMERCIALS

CORPORATES/MINISTRIES


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MARKETING STRATEGIES

INHOUSE>>

EVENTS/GREETINGS/ PERKS

FLYERS

MARKETING PRESENTATIONS

EXISTING CLIENTS NEW CLIENTS


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CAREER PROSPECTS

RETAIL/COMMERCIAL BANKING

CORPORATE BANKING

SALARY STRUCTURES

PROMOTION POLICIES


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THANKS & GOOD LUCK!!

Banking Overview Final

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