National Australian Bank Business Environment - Case Study Example

Running Head: NATIONAL AUSTRALIAN BANK National Australian Bank Name Tutor Date National Australian Bank Introduction National Australian Bank is a financial service group that offers a all-inclusive and incorporated range of banking as well as financial services and this includes wealth management in Australia, New Zealand, Asia, UK and US also well. The National Australian Bank has invested in various countries and specifically I will be reporting the bank’s investment in New Zealand. In New Zealand, the Australian had invested in Bank of New Zealand whereby it has about one million clients and offers retail, business and agribusiness as well insurance services. Political, Regulatory and Legal Environment In New Zealand, the Ministry of Economic Development as well as the Ministry of Consumer affairs has a significant role in regulation of the financial services within the country. The securities commission also has a role in financial services industry which is a new regulator of financial advisers. Any organization that offers financial services within New Zealand is supposed to register on the financial service providers register which is run by the companies office. Any financial service provider who works with public members will have to belong to an endorsed consumer dispute resolution scheme (Smith, 2008). Whether expanding locally or globally; the Ministry of Economic Development aims at establishing a business environment that enables businesses to grow. The ministry works with organizations such as MFAT and New Zealand Trade and Enterprise in order to facilitate connections between local organizations and international markets alongside others which include Investment New Zealand as well as NZTE which attract foreign direct investment. These all offer advice on matters that affect management and business capability at the organizational level. This consists of the design, implementation as well as ongoing operation of business development programs provided through New Zealand Trade and Enterprise. Moreover, the OECD guidelines for multinational organizations offers voluntary principles and standards for responsible business conduct covering matters such as information disclosure, employment, industrial relations, environment, consumer interests, competition in addition to taxation (Maunders, 2007). The Reserve Bank of New Zealand regulates the banks in New Zealand. It is owned by the government and it is the most powerful bank in the country and its powers equals a central bank. The Reserve Bank of New Zealand Act 1989 offers the bank with sovereignty to employ monetary policy in the outline of the Act as well as the Policy Targets Agreement under this Act. The financial sector in this country has gone through complete deregulation. The main goal of deregulation is to improve the competence within the financial segment by making it more competitive and promoting market discipline within financial markets. Policy plans have thus been directed in the reduction of hindrances to competition. Interest rates as well as other controls have been abolished and also regulatory and legislative differences between diverse institutional groups have been lowered. Deregulation has largely contributed to fast growth within money market, the expansion of a substantial secondary market within government securities, the opening of broader range of financial instruments and this include forward contracts, alternatives and also exchange rate risk. Legislation that affects the financial sector is revised appropriately to make sure that it matches with the modern banking practices (Smith, 2008). Furthermore, the Reserve Bank of New Zealand Act has been revised several times in order to aid the coordination of home and host banking management between New Zealand and Australia, to expand the Reserve Bank’s regulatory powers to comprise non-bank deposit tankers and to enable the Reserve bank to delegate payment structures. This reserve bank also is the supervisory authority for all New Zealand’s registered banks (NZ Society of Accountants, 2007). In regard to supervision, the reserve bank promotes and maintains the general soundness and efficiency of the financial system and to evade major damage to the financial that could lead to the collapse of a registered bank. To infuse regulatory discipline, there is a requirement that the banks should comply with registration conditions like restrictions on lending to allied parties. If a registered bank goes through financial anguish, the Reserve Bank, with endorsement of the Minister of Finance, has lots of powers for intervening in order to avoid major damage to the financial system. These powers comprise of directing the banks and implementing statutory management (Smith, 2008). Economic Environment New Zealand has gone through so many economic changes. The deregulation of the country’s economy was done to enable the market forces to have increased control that before. Basically, this has had an effect on New Zealand’s businesses, as financial backings and other support measure have gradually disappeared. The New Zealand businesses are currently dependent on global market forces. Therefore, this economic pressure is something that this bank should contend with. The 4th labor government enforced free market principles within the country, which has been employed by ensuing governments. The high protection level in New Zealand is no longer there. Consequently, New Zealand businesses should put more efforts in their economic well being very carefully, probably more than previously where businesses had higher levels of protection (Low, 2009). Social Environment Corporate social responsibility is a lasting planned strategy that connects a business to a social matter. In New Zealand, several companies are required to have a policy that acts as a good corporate citizen and also supports local community undertakings, without essentially benefiting commercially. Implementing corporate social responsibility values consist of: Caring for New Zealand through fulfilling social responsibilities Valuing employees and being an excellent employer Taking environmental obligations For the bank to be socially responsible it is supposed to apply its business values to the society in a practical manner, and should link donations, society actions as well as other plans to those values. The advantages for the business to adopt a socially responsible policy consist of, increased loyalty from the customers, strengthening employee and team spirit, strengthening business partnerships and also increased profits (Douglas, 2006). Business Environment Emerging Threats for the Business Recently, the Reserve Bank of New Zealand came about with additional uncertainty within the shorter term in regard to the future direction of interest rates within New Zealand. Since the long term interest rates have fallen, longer term bonds are likely to give a very small value. Longer dated bank term deposit rates have not dropped in response to movements witnessed within the wholesale money market. These higher yielding deposit rates are presently on offer because banks are trying to attract longer term retail funding and also because there is a slow system in the manner which amendments are done on carded deposit rates in order to lower wholesale yields. While the research has shown that short term duration for fixed interest ranges is the suitable strategy, provided that little value can be attributed to longer term bonds. Therefore, the bank should consider investing a percentage of their portfolio in a five year term deposit and hence take advantage of the yields on offer. Specifically, this would so appropriate for the bank if it is seeking customary income as well as a high level of security. Additional reinforcing of the banking market in New Zealand has been the unemployment information whereby the unemployment has risen and hence interest rate has given another evidence for slowing recovery of banking sector (Joseph, 2009). New Zealand international competitiveness has slipped where New Zealand has gone down to 18th within the generally growth competitiveness ranking, down from 14th last year and from 3rd place 6 years ago. New Zealand is found to be having “major competitive disadvantages” form high levels of government regulation and compliance expenses as well as strict law on recruiting and sacking in New Zealand. Restraining labor regulations has been rated as the most challenging aspect when doing business in New Zealand. The coming out of restraining labor regulations is the most notable concern under “problematic characteristics” is liable to be linked to current employment relations along with holiday’s legislation changes (Low, 2009). In New Zealand, natural disasters are rare and the country has one the most effective systems to monitor natural disasters and also New Zealand have several plans of action. The most frequent disasters within New Zealand include earthquakes which happen often on both north and south island. Landslides and avalanches are also frequent and are caused by heavy rains. New Zealand has a very mountainous terrain and this contributes to the landslides and avalanches. Moreover, the country experiences volcanic eruptions with nine active volcanoes. Finally, cyclones and strong winds are very strong and cause severe damage which include, flooding, roads collapse as well as life loss (Smith, 2008). The Australia New Zealand Closer Economic Agreement was established in 1983 and it was the first Australia’s bilateral agreement. This led to the expansion of trade between Australia and New Zealand. Australia New Zealand Closer Economic Agreement has been acknowledged by World Trade Organization as the model free trade agreement which covers numerous trade matters; largely all trans-Tasman trade in goods, counting agricultural products, as well as services. Investment from one country to the other is also vital. Australia is the major investor within New Zealand while New Zealand is rated as the third investment destination for Australia. Over half of Australia’s total investment in New Zealand is Foreign Direct Investment, demonstrating the high level of economic integration (Smith, 2008). Comparative Advantage Concept A country has a comparative advantage in production of a good or service if it is able to produce it at lower cost than any other country. The key to enhanced economic growth in New Zealand is within the invention of new areas of comparative advantage as well as in the country’s economy diversification. The company invested in this country because there is availability of cheap labor in New Zealand as compared to Australia. Therefore, New Zealand is able to provide high quality services at cheaper costs. Basically, all economies rely on other economies and are affected by incidences outside their borders (Hendy, 2010). Conclusions and Recommendations Previously, National Australian Bank has attained several offshore banking and financial services businesses. Differentiating Factor NAB’s main differentiation point from its key bank peers is its presence within New Zealand banking market. This offers a source of earning diversification for the bank and also some alternative growth opportunities. Nevertheless, it also lowers NAB’s leverage to the domestic banking market and, provided the underperformance of the New Zealand’s banks lately has dragged National Australian Bank’s earnings growth. Therefore, I recommend that National Australian Bank should take advantage of New Zealand’s economic deregulation and invest more as this will give the bank increased control over its business. Moreover, the bank should capitalize on the country’s Political, Regulatory and legal environment to attempt several acquisitions for its wealth management division (Joseph, 2009). References Douglas, A. (2006). New Zealand Banking. Princeton: Princeton University Press. Smith, A. (2008). An Inquiry into the Nature and Causes of the Wealth of Nations. New York: Liberty Press. Joseph, A. (2009). History of economic analysis. Austria: Allen & Unwin. NZ Society of Accountants (2007). A Proposed Framework for Financial Reporting in NZ. California: Sage. Maunders, K. (2007). Corporate Social Reporting. London: Prentice Hall. Hendy, S. (2010). New Zealand’s voyage of economic self-discovery. New York: Sage. Low, C. (2009). New Zealand economy. Adelaide: Rigby Limited. Read More