--%>
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 : Calculating Beta when market

    A company with a market capitalization of $100 million has no debt and a beta of 0.8. What will its beta be after it borrows $50 million (giving that there are no other changes and no taxes)?

    		•
  • Q : Compute the present value of the

    Is this possible to value companies by computing the present value of the Economic Value Added (EVA)?

    		•
  • Q : Problem on raising new capital AB

    AB Corporation has 3 million shares of common stock selling at $19 each. It also contains $25 million in bonds with coupon rate of 8%, selling at par. AB requires $10 million in new capital that it can raise by selling stock at $18, or bonds at 9% interest. The expect

    		•
  • Q : PV of Dividends PV of dividends:

    PV of dividends: Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent?

    		•
  • Q : Why required return cannot computed by

    Why can we not compute the required return (Ke) by the Gordon-Shapiro model [P0 = Div0 (1+g) / (Ke – g)] in place of using the CAPM? As we identify the current dividend (Div0) and the current share price (P0), we can acquire the growth rate of the dividend by th

    		•
  • Q : Problem regarding purchasing machine

    Alger Corp needs to buy some construction equipment for $50,000 that has a helpful life of 4 years with no salvage value. The Alger utilizes straight-line depreciation. Alger contains a tax rate of 30%, and it employs a discount rate of 10%. The equipment will produce

    		•
  • Q : Which frame work does not give very

    Which model of frame work does not provide the very good prices for bonds?

    		•
  • Q : How economic doctrine relies on

    I read in a sentence passed through the Supreme Court that, so as to value companies, economic doctrine relies upon intermediary methods among ‘Anglo-Saxon’ theoretical models and the practical models common in the United

    		•
  • Q : What are capital investment The capital

    The capital investment appraisal techniques such as NPV, IRR, ARR, PV and Time value of money have become irrelevant post Celtic Tiger. Due to the depth of the recession companies do not have budgets to invest. Discus First use this information when you are writing this essay: 1.&

    		•
  • Q : Problem on common stock The AB Corp

    The AB Corp stock has a β of 1.15 and it will pay a dividend of $2.50 next year. The expected rate of return of the market is 17% and the current riskless rate is 9%. The expected rate of progress of AB is 4%. Find the value of its common stock.

    		•