Wholesale and Retail banking.pptx

Wholesale & Retail Banking

1. Introduction to Corporate & Retail banking Prepared By: Md. Nazmul Hasan Assistant Professor Department of Banking and Insurance University of Dhaka Email: [email protected]

2. Banking Banking: Engaging in the business of keeping money for savings and checking accounts or for exchange or for issuing loans and credit etc . Commercial Banking: The traditional role of the banker as it relates to the taking of deposits and granting of loans. In doing so, it just facilitates the fund from savers to users.

3. Corporate/Wholesale Banking Banking with organizations like large corporate clients, mid-sized companies, real estate developers, institutional customers (pension fund) etc. Lending based on strong cash inflow, highly promising projects, sound balance sheet and income statement and adequate security . Usually large sum of money. Company saves, bank still makes handsome profit.

4. Wholesale Banking (Conti….) Prioritized more highly than retail customers. Long term trustworthy relationship, advisory services, growing and partnering together. Offering includes fund based service, non-fund based service, value-added service. Fund based service: Term credit, Short-term financing, Working capital financing, bill discounting, Export credit, Consortium financing.

5. Wholesale Banking (Conti...) Non Fund based service: Bank guarantee, letter of credit, collection of bill and documents. Value added service: Cash management service, wealth management, financial advisory, channel financing etc.

6. Wholesale Banking example Imagine a regional grocery store with 15 branches, Bob's Groceries. Bob's needs a separate checking account for each of its 15 locations. Bob's also needs a corporate credit card to access this account for three managers at each location, totaling 45 cards. Bob's also likes to keep some money in reserve in a savings account totaling no less than $5M. Finally, Bob's needs to process credit cards, which means it will need a merchant account. Instead of walking into local Sue's Bank and opening a checking account like any person would, Bob's needs a corporate facility where it can house all of its financial accounts. Ideally, Bob's would like a discount for the large amount of business it hands this bank. Bob's decides to work with Sally's Wholesale Bank. Sally's offers much more competitive fees as long as Bob's maintains at least three accounts and holds more than $5M in the bank at all times. Bob's agrees, and Bob's and Sally's begin a wholesale banking

7. Risk of Wholesale Banking Large amount of cash in one location so solvency and soundness of that bank is important. ( solution: insure fund or further diversification) Compromised credit quality.

8. Retail Banking Organized banking services started in 15 th and 16 th century Europe, when banks began opening branches in commercial areas of large cities. By the last quarter of 19 th century banks were consolidating their branch networks so that they could operate in a more integrated matter.

9. Retail Banking (Conti...) Typical mass-market banking in which individual customers use local branches of larger commercial banks. Services offered include: Services includes ATM, internet banking, mobile banking, savings accounts, current accounts, Certificates of deposit (CDs)/fixed deposits, home loans, personal loans, car loans, education loans, commercial vehicle loans, credit card, debit card etc. Transactions directly with customers rather than corporations. Customer service is the end point of all retail banking services.

10. Retail Banking (Conti...) Multiple products, multiple channel of distribution, multiple customer groups. Focuses on individual and small units ,offers a variety of ways to access on account and manage money. Objective is to provide target customers a full range of financial products and banking services, giving the customer a one-stop window for all banking requirements.

11. Retail Banking Example Bob arrives at his bank one day to  deposit  a $2000 paycheck into his account. He decides to deposit $1000 of the paycheck into his existing checking account. The other $1000 he decides to use to  open  a  savings account . Bob sits with a bank representative who explains the various savings account options and helps him with opening an account once he's made a decision. Additionally, the account representative informs Bob of retirement plans the bank offers as well as educational  savings  plans for his children. Before he leaves, Bob also takes information on auto  loans offered by the bank since he is considering purchasing a new car. While at the bank, Bob was able, in one place, to deposit  money , open a savings account and find information relating to banking products he may need in the future.

12. What factors contributed to Retail Banking? Increase in Economic Activity When the income rises, changes in tastes, and new technology and market competition leads to higher economic activity. Increase in Purchasing Power No income to good income, low income to high income Technological Factors: Inceptions of new tech Nuclear family concept lead to large savings and large number of banking services Globalisation, women-enrollment in workforce, urbanisation and cost of living drives the trend for nuclear family Decline in interest rate Usually interest rate is high for retail loans and thus when it starts to decline….

13. Challenges for Retail Banking Retention of Customers (too many banks for clients to switch) Rising Indebtness (Risking their business due to credit risk) Opportunities and challenges of information technology. KYC issues and money laundering issues (More eyes on banks: so consider seriously all documents) Increased threat of Security Breach (Case of BB)

14. SWOT Analysis: Strength Diversified asset portfolio Improves standard of living New growth driver CRM tool Innovative product development

15. SWOT Analysis of RB: Weaknesses Excludes Corporate Sector High Marketing Costs: To attract more individual client base requires mass-marketing Prompt Changes in technology Reduces profitability (Per unit services costs more) Co-ordination Issues

16. SWOT Analysis: Opportunities & Threats Opportunities: Scope for Innovation Rise in per Capita Income Surprising Economic Growth Threats: Large Disbursement of loan Issue of customer Dignity Issue of customer Privacy

17. Advantages of Retail Banking: Resource side: Retail deposit are stable. (Forms Core Funds) Increases subsidiary business for a bank Effective Customer Relationship Management builds stronger customer base The idea of cross-selling : Bring customer, support their causes, promote them to get bigger, they will ultimately seek more services from banks.

18. Advantages of Retail Banking: Asset side: Better yield and improve bottom line of a bank Retail segment is a good avenue for fund deployment Help economic revival of the nation through increased production activities Innovative product development (In pursuit of beating the competition, banks need to innovate its portfolio) Improves lifestyle and fulfills aspiration of people through affordable credit. Limited marketing effort in a demand-driving economy

19. Drawbacks of Retail Banking Designing a new financial product is costly and time consuming Banks, that are slow in introducing technology based products, are finding it difficult to retain the customers who wish to opt for convenient/online banking Exploitation of technology in full extent is absent Competitors hunt to copy once a bank innovate something new Monitoring and follow up of huge amount of loan accounts inducing banks to spend heavily Long term loans like house loan due to its long repayment term in the absence of proper follow up can become NPL.

20. Retail Banking Vs. Wholesale Banking Customer Segment: Individual vs. institutional Size of loan: Small/Medium vs. Large Impact on Net Profit: Depends on volume of credit and spread Cost of Deposit: Low cost vs. high cost Monitoring: Less vs. high Operational Cost: Expensive vs. inexpensive Volume of Transaction: Very high vs. low

21. Thanks for your patient hearing!