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Industry Research

Industry Research. Prepared by: Angus Christina Crystal Henry Rita Sally. Introduction. Global Trend Competition between investment banks and commercial banks Profitability of banks Conclusion. Global Trends. Advanced technology (e.g. E-banking) Reduce manual work

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Industry Research

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  1. Industry Research Prepared by: Angus Christina Crystal Henry Rita Sally

  2. Introduction • Global Trend • Competition between investment banks and commercial banks • Profitability of banks • Conclusion

  3. Global Trends • Advanced technology (e.g. E-banking) Reduce manual work Reduce number of banks Integrate some banks’ branches Difficult for small banks to survive due to lack of resources

  4. Global Trends • Deregulation Border of services started to break down Similar products provided by different types of banks Competition between financial institutions increase • Change of corporate behaviour raise fund in capital market instead of borrowing from banks Commercial Bank earn less profit Tendency to merge Why?

  5. Reasons for merger • Diversification of services and credit risk • Provide more synergy effects • Reduce cost • Increase efficiency • Decrease redundancy • Share knowledge

  6. Competition Between Investment Banks and Commercial Banks

  7. Reasons of the Increasing Competition of Banks 1. Development of Security Markets 2.Attractive Profit in the Security Business 3. Expansion in Banking Services to Clients 4. Deregulation in Banking Act (in US) 5. Comparative Advantage of Commercial Banks

  8. 1.Development of Security Markets - corporate borrowers raise funds directly through capital markets •  demand for traditional commercial banking service • CBs expand to fee-intensive activities

  9. 2. Attractive Profit in the Security Business • Hefty fee and commission in investment activities

  10. 3. Expansion in Banking Services to Clients - Banks already have close contacts with a large base of business and municipal customers - Providing commercial services - Expand to investment bank services  -maintaining the existing level of client base

  11. 4.Deregulation in Banking Act (in US) • CBs are governed by Glass-Steagall Act 1933  Limitations on CBs’ participation in security activities  Deregulation  • Gramm-Leach-Bliley Act 1999  CBs can engage in more financial activities

  12. 5.Comparative Advantage of Commercial Banks • Having lending relationship with issuers • Superior knowledge on issuers’ financial information and conditions CBs have a lower cost of information time spent on research 

  13. Profitability study Profitability on US bank

  14. Recovery Period • During the period 1992 to 1999, the bank’s performance was good. • Sound management and risk control

  15. Year 2000 • Net earning of US banks slightly decreased • Decrease in RoE (return on equity) • Rises in outstanding bad loans • Increasing M&A activity • Number of banks has fallen from 12,300 in 1990 to 8300 in 2000

  16. Year 2001 • Again slowdown in profitability • Rise in bad loans (increase 10%) • Low demand for loan (low income)

  17. Conclusion • Changes of the banking environment  Bank has more opportunities to develop

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