The Effects of Globalization on Banks Profitability


 


            In the early 80’s and 90’s banking can be compared to an interview appointment. You cannot conduct unless you have to be there yourself. Transactions should be made by the account owners or if possible, with authorization of account owners. Loans, credits and such transactions is a tedious effort because of the absence of modern communications and technologies especially in developing countries. Such system delimits the mobility and accessibility of a very important institution. But in recent years, technology has been an instrument in creating considerable change and in the way people conduct business. And banking industry is one of the industries that has adapted to the change to serve its clients efficiently and ultimately, to increase profitability. Globalization[1] has come.  


            Globalization provided various benefits and opportunities to the banking industry. Gone are the days when creditors and lenders have to travel far to avail of bank’s services. Deregulation has paved way to any glitch that this industry must face. Deregulation, according to wisegeek refers to the elimination or simplification, of various laws that apply to banks. This concept is often promoted by free-market advocates. These proponents stress minimal, if any, interference by the government in the private sector. Usually bank deregulation, however, does not involve the elimination of laws against fraud and other criminal practices.


            The barriers that limits the marketing engagement of banks to spread their services to far-flung areas have considerably, if not completely diminished. Global banks[2], which operates in many nations and offers the broadest range of financial services, expertise in foreign markets and the finances to facilitate large deals (Berger, A., Qinglei D.,Ongena, S., Smith, D. 2002) are gaining a foothold largely because of their superior stability and government protection against closure. But local banks[3] and regional[4] banks are also gaining momentum because of its focused program on small and medium enterprises. And in some instances, clients prefer local banks because of closer relationships brought about by familiarity.


            This globalization has further enhances the delivery of services brought about by both local and global banks. Simple transactions like cash withdrawals need not be a hassle since automated teller machines (ATM) are located in accessible areas and are open 24-hours a day 7-days a week. In most countries, every town or city has ATM machines that are available for use even if the client’s bank is located in the metropolis. Almost all banks whether local or global are interconnected by networks[5] that make it easier to transfer or receive funds.


Virtual banking transaction is easy with the use of electronic services. With the advent of technologies even mobile phones are being used to transact online. Loans or credit cards applications can be done online, although this system is not foolproof because of hacking[6] threats and the occasional technology glitches. To address this issue, banks are refining their security features to give their client safe banking experience.


The import and export industry has largely benefited on bank’s globalization because of enhanced and highly accessible bank transfers in most currency exchange. Payments can be made and received in the shortest possible time thus facilitating faster transactions.


Suffice it to say that bank’s globalization does not only benefit the institution themselves but also the economies of the countries that serves utilizes its services.


Globalization of banks may provide benefits and increased profitability on the institution but it also opens door to risks and threats. Take the case of the recent meltdown of giant financial institutions[7] that sent robust economies spiraling down. No one would have thought that an institution with 158 years of banking and financial expertise (Lehman Brothers) will succumb to bad debts and deficits and affects the numerous financial institutions connected to it. There have been numerous buy-outs[8] and acquisitions[9] also from banking institutions in different parts of the globe. Bigger banks are acquiring the smaller ones to be able to dominate the market. The bigger, the more stability it can offer. The IMF however, may help economies manage or reduce these risks, through economic analysis and policy advice and through technical assistance in areas such as macroeconomic policy, financial sector sustainability, and the exchange-rate system (imf.org). But ultimately, their home country government is the one that will give them bail-outs.


            If the risks and rewards are to be evaluated, the rewards still far outweigh the risk of globalization. On part of the clients, the convenience brought about by global transactions is incomparable. And convenience means added productivity on both sides. And on the part of the banks, it spells bigger revenues with added clients and transactions. Not to mention the savings because of lesser manpower and the processes involved in every transactions. Technology has been able to replace some of the mundane tasks that need to be done.


            Indeed, globalization is bringing the world closer, and without doubt drivers of growth and success in banking industry.


 


 


 


References


Wisegeek, What is Bank Deregulation? viewed 5 July 2011 http://www.wisegeek.com/what-is-bank-deregulation.htm


 


Berger, A., Qinglei D.,Ongena, S., Smith, D. 2002, To What Extent Will the Banking Industry be Globalized?, Number 725 May 2002


 


Lind, Michael, The Great Myths of globalization, viewed on 4 July 2011 vhttp://www.salon.com/news/globalization/?story=/politics/war_room/2011/06/28/lind_globalization


 


Wikipedia, Interbank Network, viewed  5 July 2011, http://en.wikipedia.org/wiki/Interbank_network


 


International Monetary Funds, Crisis jolts globalization process, viewed 5 July 2011 http://www.imf.org/external/np/exr/key/global.htm



 

[1] Globalization refers to the increasing unification of the world’s economic order through reduction of such barriers to international trade as tariffs, export fees, and import quotas.(Wikipedia)


 


[2] Operates in many nations and is among world’s largest institutions


[3] Operates in single nation


[4] Lies between each extremes


[5] Megalink, Bancnet, Cirrus and Plus


[6] Computer hacking, including the following types of activity: stealing information and data e.g.


[7] AIG, et.al


[8] The purchase of an entire holdings or interests


[9] The act of gaining or acquiring possession



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