PEST Analysis for Bank Muscat - Case Study Example

?PEST Analysis for Bank Muscat Introduction Modern economic systems consider banks as their backbones referring to the fact that a series of bank failures in the United States over the last decade dreadfully affected the US economy and thereby the whole world. Economies, particularly emerging economies like China and India, give particular focus to the development of banking sector because their stringent banking policies assisted them to survive the recent global recession successfully. This paper will perform a PEST analysis of Bank Muscat, a commercial bank of the Oman, and critically analyze the findings to provide the bank with potential policy recommendations. 1. History and growth of Bank Muscat The Bank Muscat is a commercial bank of Oman, founded on 30th April 1982. It has strong operational presence in sectors including corporate banking, investment banking, retail banking, and private banking. Currently, the Bank Muscat is the largest banking network in Oman with over 130 branches and assets worth more than US$18 billion (Bank Muscat). It has presence in overseas countries including Riyadh, Saudi Arabia, and Kuwait with a branch each and possesses a representative office in Dubai and UAE. The Bank Muscat is being continuously rated as the ‘best bank in Oman’ over the last several years and it has been awarded the Hewitt recognition as ‘the Middle East’s Best Employer 2009’ (Hewitt 2009). 2. PEST analysis of the company The PEST analysis is a potential tool to analyze the macro-economic environment of a business industry. This tool can be used to assess the market for the Bank Muscat. Political factors The political framework of Oman is in the form of an absolute monarchy where the Sultan of Oman acts as the head of government as well as head of state (Al-Azri 2012, p.1). The court system in Oman has three levels including Elementary Court (lowest level), the Court of Appeal (middle level), and the Supreme Court (highest level). Since Oman is an absolute monarchy, it has clear long term policies regarding the banking development in the country. The recent global recession has persuaded the Sultanate of Oman to focus more on sustainable banking development. Therefore, the Oman government greatly supports Bank Muscat’s efforts to strengthen its market position and to expand its banking business. The strong government assistance benefited the Bank Muscat to become the first company from Oman to be listed on the London Stock Exchange. In addition, Oman maintains better diplomatic relations with US and India; and this strength is likely to contribute to the Bank Muscat’s future growth. Economical factors Oman is a Middle East country which has been achieving significant GDP per capita growth rates for the past half a century (Gonzalez 2008, p.154). The country has significant oil and natural gas reserves and they appear to be the main source of revenues for the country. As studies indicate, the intense modernization efforts taken by Oman to improve its people’s living standards and to attain a significant position in the global marketplace are also promoting the operations of the Bank Muscat. Since Oman is one of the Middle East countries with no national debt, investors view Oman as a stable economy and they are willing to invest in the country (Doing business in Oman). This favorable economic situation greatly assists the Bank Muscat to attain the trust of investors and hence to promote their banking operations easily. As of the quarter ended on 31st March 2009, the net profits of the Bank Muscat nearly doubled to “OMR 48.42 million from OMR 26.54 million in 1Q08 (GCC First reaction paper 2009). Finally, competitive interest rate set by the Bank Muscat would safeguard the interests of its clients and the situation in turn may assist the bank to raise huge operating funds. In total, the country’s economic spectrum offers a prosperous future for the organisation. Social factors With the failure of a number of banks across the globe, Oman’s people have become increasingly concerned about transparency and accountability of banking transactions. As a result, today Oman’s companies pay specific attention to business ethics and social responsibility. The Bank Muscat has recently taken initiatives to fight unemployment in the country and it was awarded by the Oman’s Ministry of Manpower for its Omanization efforts and other national manpower initiatives (Muscatdaily). This good social status has benefited the company to gain a well public reputation. As discussed earlier, people’s living standards in Oman have been dramatically improving over the years and hence their needs too. Undoubtedly, this situation raises potential opportunities for the Bank Muscat because people are likely to primarily depend on banks for fund raising. The mounting Omani population growth offers some potential development opportunities for the Bank Muscat because this situation enables the organization to open more branches in the country and to increase the volume of its business. In addition, Oman has a good literacy rate (86.7) (Foreign and Commonwealth Office). Hence, more people are likely to use different banking services provided by the Bank Muscat. Since Oman is home to tens of thousands of immigrants, those people may use Bank Muscat’s services for money transfer purposes. Technological factors Evidently, technology greatly influences a bank’s internal control mechanisms and its service offerings. The faster growth of information technology has greatly aided banking institutions including Bank Muscat to provide their customers with convenient transaction facilities and to maintain overseas branches. The introduction of online banking and mobile banking can be directly attributed to the developments in the information technology (Technology in banking). In addition, introduction of ATM counters and foreign exchange services is identified to be the fruitful outcomes of internet which in turn has assisted the Bank Muscat remain one of the largest banking service providers in the Gulf region. The development of debit and credit cards can be considered as milestone in the banking history because this innovation has promoted the concept of ‘cashless society’ and notably changed the way banking organizations operate (Henningson 2012). On the strength of technological advancements, the Bank Muscat provides its customers with 24?7 service offerings. 3. Analysis of findings The PEST analysis gives a clear view of the market for the Bank Muscat. From the overall analysis, it seems that the Oman’s banking sector offers a range of further growth opportunities to the Bank Muscat. Clearly, the favorable social conditions prevailing in Oman seem to be the greatest factor promoting the growth of the organization. The country’s growing population rate and relatively high literacy rate significantly add to the scope of the bank’s future growth. The firm’ status as a socially responsible banking service provider has greatly benefited the bank to increase its shareholder values. In addition, Oman’s technological landscape greatly supports the business operations of the Bank Muscat by modernizing and strengthening its banking network. Evidently, a stable and strong Omani economy together with a monarchial framework of the government also plays its role in spreading the business of the bank. Data indicate that the Bank Muscat performed well even in the midst of the recent global recession and it reflects the fact that organization is not prone to global economic meltdowns or market shocks. Hence, the Bank Muscat has the potential to become one of the top leading banks in Middle East if the firm’s management is proactive in developing operational policies and introducing changes. 4. Strategy of the Bank Muscat By taking advantages of a set of favorable business conditions, the Bank Muscat strives to spread its business internationally. The Bank Muscat’s official website states that “the international expansion strategy of the bank aims at expanding geographically to complement our strong presence in Oman and to diversify our risk” (Bank Muscat). Since the bank has a strong financial position, it tries to acquire stakes in other leading banks and other financial institutions. To illustrate, the organization currently possesses 49% stake in BMI Bank (Bahrain), 43% stake in Keshav Group (India), 97% stake in Muscat Capital LLC (Saudi Arabia) (Bank Muscat). 5. Recommendations Since Oman is a stable economy with little national debt, Bank Muscat may face fewer threats of defaults in loan/mortgage repayment. Therefore, it is recommendable for the Bank Muscat to offer low interest rates on borrowings and high interest rates on deposits. This strategy would assist the organization to improve its total volume of transactions and thereby to increase revenues. In addition, it is better for the organization to enter the emerging markets like China and India because global bodies like IMF has predicted that these economies would dominate the world over the coming decades. While entering overseas markets, specifically Western markets, the Bank Muscat should pay particular attention to social responsibility programs because those countries may not support businesses that do not invest in the community in which they operate. 6. Conclusions From the above discussion, it is clear that the Bank Muscat has a potential macro-economic environment and hence it maintains greater future growth potential. The favorable social and economic environments of Oman significantly benefit the bank to enhance its business operations. On the strength of its strong economic status, the bank tries to spread its risk by promoting international expansion. Setting competitive interest rates would be an effective strategy to boost the business of Bank Muscat in Oman. References Al-Azri, K. M. (2012) Social and Gender Inequality in Oman: The Power of Religious and Political Tradition. Routledge. US. Bank Muscat. Official website. Available at http://www.bankmuscat.com/en-us/AboutUs/Pages/default.aspx [accessed 9 Jan 2013]. ‘Doing business in Oman’. US Commercial Service. [Online] Available at http://export.gov/oman/static/CCG%202012%20Oman%20-%20Final%20for%20Public%20_Latest_eg_om_055867.pdf [accessed 9 Jan 2013]. Foreign and Commonwealth Office. Middle East and North Africa. [Online] Available at http://www.fco.gov.uk/en/travel-and-living-abroad/travel-advice-by-country/country-profile/middle-east-north-africa/oman [accessed 9 Jan 2013]. Gonzalez, G. (Ed.) (2008) Facing Human Capital Challenges of the 21st Century: Education and Labor Market Initiatives in Lebanon, Oman, Qatar, and the United Arab Emirates. Rand Corporation. GCC First reaction paper. (2009) Taib research. May 05. [online] Available at http://www.menafn.com/updates/research_center/Oman/Equity_val/taib050509ev.pdf [accessed 9 Jan 2013]. Hewitt best employers in Middle East 2009. [Online] Available at http://www.alghanim.com/corpweb/cms/groups/corpweb/documents/adacct/003720.pdf [accessed 9 Jan 2013]. Henningson, P. (2012) ‘Credit and Debit Cards: Towards A Cashless Society’. Global Research, Sep 11. [online] Available at http://www.globalresearch.ca/credit-and-debit-cards-towards-a-cashless-society/5304078 [accessed 9 Jan 2013]. Muscatdaily. ‘Bank Muscat honoured for Omanisation efforts’. [Online] Available at http://www.muscatdaily.com/Archive/Oman/Bank-muscat-honoured-for-Omanisation-efforts-1wrr [accessed 9 Jan 2013]. Technology in banking: Insight and foresight. IDRBT. [Online] Available at http://www.ey.com/Publication/vwLUAssets/Technology_in_Banking_-_Insight_and_Foresight_IDRBT_EY_REPORT/$FILE/Technology-in-Banking-Insight-and-Foresight-IDRBT-EY-REPORT.pdf [accessed 9 Jan 2013]. Read More