Business — Banking — Management — Marketing & Sales

Strategic options

The progressive liberalisation of capital movements and the global dimension assumed by the financial markets in the eighties have resulted in a world-wide structural change in the credit Industry. The euphoria of a simple market place with a plethora of global players which predominated to begin with has given way to a more sober and differential approach with the end of the economic boom.

That is why we now give a review of the current situation of banks and a strategic options estimation.

International developments

Increased competition due to deregulation of financial markets.

The ongoing process of deregulation and liberalisation of financial services markets implies more commercial opportunities and at the same time more intense competition with banks and non banks. Customers will ask for more advice and problem solving. As the interest rate margin narrows due to a «pincer movement» on the asset and liability side, profits from interests rates will drop. Commissions and fees will make a greater contribution to earnings than in the past.

More stringent harmonisation requirements placed by the supervisory authorities on banks

The new international capital requirement has obliged banks in some countries to contain the growth of their risk assets and/or to take on new capital resources.

Statutory provisions on banks tend to move away from market forces and more stringent requirements are imposed on banks for prudential reasons. Further international standards are likely to be adopted with respect to market risks (interest rate variations, currency and position risk).

Growing cost awareness and better risk-control

The higher cost of refinancing on the liability side has led banks to commit themselves more to credit segments which earn higher interest, but, at the same time, involve higher risks, therefore risk control must be improved. This will include efficient internal control systems, which provide information on branch, country and individual risks quickly and act as an early warning system.

Ongoing process of concentration in the banking industry

The narrowing of profit margins and rational cost management will further encourage the process of concentration; but the assumption that the future main trend will be towards the concentration of banks into increasingly large financial conglomerates is now contested, even if this trend can be observed; Despite economies of scale, structures of this kind are not necessarily more efficient and profitable than smaller banks; Banks still have adequate potential for concentrating on commercial activities and exploiting financial niches which bring the best prospects of profit.

Experts assume that, while having a wide range of business opportunities at their disposal, banks will be more inclined to select only those they regard as best suited for their specific needs.