Long Term Trends in The Global Banking Sector

Global banking has extended rapidly in the last 3 decades. Its structure and reach reveal critical features of the part global banks play in the international economy. Global banking has proved to be a critical constituent of a comprehensive procedure of economic development.

Traditionally, it has extended concurrently with global trade and has conducted critical tasks for the operations of global firms. Again, the regional processes of international banks have facilitated the growth of monetary structures in developing markets and assisted in easing information issues through exceptional customer relationships.

The requirement for monetary facilities from global enterprises and expeditiously developing markets is certain to transform global banking and its influence on economic development in the forthcoming years.

A change of transaction movements and global manufacturing towards developing nations could hasten the monetary amalgamation. This could lead to enhanced contribution in the markets by global banks and an improved global movement by regionally-based banks. Therefore, banks that emerge from developing nations could play a critical role in trans-border amalgamation in the financial industry.

The impact of global banks on the international economy is intrinsically connected to global financial markets. Since they conduct corresponding activities, both types of financial intervention are essential, along with a robust market framework, for the strong working of the monetary structure.

Well ingrained financial markets mostly simplify the financing anxieties of mega firms under circumstances wherein the bank credit shrinks. On the other hand, banks are the key origin of outside funding for domestic consumption along with SME growth, since they find it difficult to access credit markets due to disproportionate statistics problems.

The globalisation of banking reveals critical controlling conclusions. A bank’s key goal is to boost shareholder value. Efficient banks have done it through exceptional cost management, while selecting a leverage that is excellent from a shareholders’ perspective.

The opening up of the global economy along with the financial markets has taken place concurrently with the growth in fiscal amalgamation internationally. In this context, the General Agreement on Trade in Services looked at many contingencies pertaining to global banking by seeking greater acceptability of international banks amidst WTO members.

The rising influence of the developing nations is a long-term market-determined occurrence. It has enhanced in the banking sector due to the comparative decrease of the West as to the extension of the East.

According to Stephen Green, Group Chairman of HSBC, “‘it is this shift that will affect financial markets most profoundly. The rapid growth of emerging markets does not signal an absolute decline in the economies of mature nations. The pie will grow. But it does entail a loss of share – the developed world will have a smaller share of a larger pie”.

The dominance of China is the most visible factor in this change. The banking sector in China is controlled by the four government-controlled “mega” banks. Three of the banks are listed on the Shanghai stock exchange.

According to Consulting firm McKinsey, “2.2 billion out of the 2.5 billion people globally who do not use a bank live in Africa, Asia, Latin America and the Middle East. This offers huge potential for expansion based on innovations such as mobile phone banking and microfinance lending”.

As per Noel Gordon, Consultant at Accenture, “While Western banks were ‘fiddling with rocket-science finance’, emerging market banks were innovating more productively. Even more significant is the rise of the middle class across emerging markets and a consequent increased demand for credit. As wage levels increase in industrializing countries, demand for mortgages and consumer loans for cars and household appliances is likely to increase”.

The main objective for banks is to develop long-term viable results. Banks have to comprehend the business models and believe they can provide viable value along with relevant risk mitigation as appropriate. They have to use performance indicators and incentive schemes to transform the organisation.

Therefore, management accountants would be vital. They have the capability to deliver exceptional management information and thereby facilitate efficient decision making. Methods such as function-oriented costing assists banks to accomplish cost control. Information on the client, product, delivery management would be vital for the overall bank performance.

As banks expand their operations, they would need to be regulated to avoid a financial crisis because of too much risk and capital flow into intricate products. Advanced nations have established robust banking regulations. Banking stakeholders have recommended effective capital and liquidity principles to ensure better transparency.

The changes in regulations in other parts would take time. Banks in the developing nations were less affected by the financial crisis and hence, decision makers in the developing nations are monitoring the regulatory framework in the West.

As per an assessment by The Institute of International Finance, “emerging markets are likely to be less affected by the regulatory reform than their Western counterparts, perhaps adding to the shift in the balance of power. It found that most emerging market banking systems were relatively well capitalised and maintained ratios of regulatory capital to risk weighted assets above the current 8% minimum under the Basel II requirements”.

An efficient capital market would be required in the developing nations as their economies expand. However, not all banks in the developed nations have been depleted. Specific banks in Spain, Russia and South Africa have done well. Some experts believe, the leadership role of the US and its currency would be replaced by a multi-polar world order. This would mean that although the US would be remain as an important player, other nations and their monetary notes, financial systems and banks would also play a bigger part.

Therefore, greater cooperation by banks across the globe is mandatory to direct the prospect of the banking sector to the long term growth path.