--%>
Assignment Help - homework help

Commercial bank problems

For an enhanced understanding of banking industry, it is significant to look at the atmosphere in which commercial banks operate. Production growth and globalization are two main forces reshaping the banking industry nowadays. The following two questions are associated to such two issues.

a) Explain one of the new banking services provided to customers by numerous local banks. Discuss the potential profits and challenges to such banks which are brought about by the introduction of this latest service.

b) Hong Kong is an international financial centre and numerous foreign banks want to set up their presence in the city. In view of public welfare, must the government impose more restrictions against the entry of foreign banks into the Hong Kong? Elucidate the rationale behind your reply.

E

Expert

Verified

Part (a):

Banks in Hong Kong were keen to develop investment services to their clients. By means of investment services, commercial banks offer stock broking, FX dealing and various types of fund and trust services to their retail clients. Despite the fact that there were mis-selling probe by locals on the structured products linked to Lehman Brothers, structured products distribution remains to be a key part of investment service offer by commercial banks to retail clients in Hong Kong. The rationale behind the banks is to boost the non-interest income. As the low interest rate environment is likely to persist in current economic condition, it is therefore difficult to banks to obtain decent net interest margin from conventional personal loans and deposits.

By offering investment services to retail clients, banks are capable of offering clients a one-stop shopping as banks can then provide banking and investment services to clients. Clients are inclined to use integrated banking service which can give banks opportunity to obtain additional market share from domestic brokers.

On the other hand, the introduction of investment services for banks poses several challenges. First of all, the case of Lehman-linked structured products had a serious impact to the image of banking industry. Banking industry had an image of high integrity and professional services before the Lehman scandal. However, it is difficult for banks to maintain high integrity of their staff when their marketing staff increases and their performance is linked to commission.

Part (b):

It is better off for consumers with a greater degree of competition among banks. Local banks operate in an environment of monopolistic competition which banks are offering similar but a range of products to consumers. From the model of monopolistic competition in classical microeconomics, when there are more firms entering into the market, the equilibrium price of the product decreases and the total welfare for the society increased. Intuitively, when there are more banks entering into the market, it intensifies competition among banks to gain business and the cost of consumers is likely to be reduced. Moreover, with more banks entering into the city of Hong Kong, it is likely to attract more skilled banking professionals to relocate to Hong Kong to seek for opportunities. Therefore, it is better off for both consumers as well as the industry as a whole.

   Related Questions in Corporate Finance

  • Q : Explain breakthroughs on

    Explain breakthroughs on low-discrepancy sequences.

    		•
  • Q : Walt disney WAAC You work in Walt

    You work in Walt Disney Company’s corporate finance and treasury department and have just been assigned to the team estimating Disney’s WACC. You must estimate this WACC in preparation for a team meeting later today....?

    		•
  • Q : Determine weighting of shares done and

    When computing the WACC, is the weighting of the shares done and the debt with book values of debt and shareholder’s equity or along with market values?

    		•
  • Q : Problem on optimal capital structure

    XYZ Company has debt/assets ratio 50%, that is too high and it must be at 45% to be optimal. This debt reduction must also reduce the bankruptcy costs by $30 million. At present, XYZ has 5 million shares of common stock selling at $50 each. The tax rate of XYZ is 30%.

    		•
  • Q : Shall we use the arithmetic mean or the

    The market risk premium is the difference between the historical return on the stock market and the return on bonds. But how many years does “historical” imply? Shall we use the arithmetic mean or the geometric one?

    		•
  • Q : Explain useful properties of

    Explain useful properties of low-discrepancy sequence theory or quasi random number theory.

    		•
  • Q : State Exploitation of favorable market

    Exploitation of favorable market conditions: The firms after estimating WCR are in a position to clearly identify their status of excess current assets. After this realization they can use this knowledge to encash conditions arising in market even for

    		•
  • Q : FIN3000 Corporate Finance Task

    Task Description Length: 1000-2000 words (up to 500 words above 2000 permitted) Description: • Complete this assignment in groups of 4-5 students. • Maintain a portfolio of financial issues taken from 8 news sources. • Analyse the articles with reference to theory covered in class and highlig

    		•
  • Q : Define reasonable things that a company

    There are four methods a company can utilize the money this generates: a) Buying other assets or companies; b) Reducing debt of it; c) Distribute this to shareholders, and d) Increasing cash holdings of it.

  • Q : Explain undervaluation of share on the

    Suppose we calculate g as ROE (1–p)/(1–ROE (1–p)) and the Ke by the CAPM. We replace both values into the formula PER = (ROE (1+g) – g)/ROE (Ke-g) but there PER we obtain is fully different from the one we get by dividing the quotation of the s

    		•