International Banking and Financial Services - Term Paper Example

International Banking and financial Services Article Asia Pacific is a global nerve centre for banking and financial industry but the banks of this region are seriously lacking good IT operation model. The scenario is same for both matured and emerging markets of the Asia Pacific region. Surveys revealed that Japan and Australia will account for 39% of global banking revenue in between 2012 to 2020. But surveys also tell that those banks will face serious challenges to cope with changing trends of global financial systems. Flexibility and efficiency scalability will be under serious threats if their IT operating models are not improved properly. It is a back bone of global banking services. According to the IT benchmarking survey, 85 banks located across 13 countries in this region do not allocate appropriate funds for IT. Various surveys have shown that situations in the matured Asia Pacific markets are slightly different from the emerging markets. It has been noticed that in matured markets banks have increased their spending on IT. In 2010 14.7% of total operating expenses were accounted for IT. In 2011 it increased and became 15.8%. In 2012 the trend decline somewhat and became 15.5%. On the other hand the scenarios in emerging markets are not at all satisfactory. In 2010, 9.4% of total operating expenses were due to IT, the trend continues to lower down. In 2011 it became 9.3% and in 2012 it reduced drastically to 8.1%. The scenario may be fair in case of matured markets of the Asia Pacific regions. But in comparison to European banks the budget allocations of Asia pacific banks in the field of IT are very inappropriate. European banks spend 19% of their total operating costs in the field of IT. It is being observed that banks belonging to the matured markets of Asia Pacific regions are spending their money for strategic changes. Those banks are focusing less towards running the bank. So, automatically their IT spending will focus upon different IT applications rather than IT infrastructure. Different surveys very categorically stated that recently banks from matured markets have started including IT in their business system for the sake of growth and efficiency. The banks are promoting customer centricity, process improvement and channel transformation with the help of IT. On the other hand banks from emerging markets are more focused towards fundamental things and trying to reduce IT complexity. It is very clear from the different surveys that banks from emerging markets of Asia Pacific are trying to catch up business growth and are more focussed towards short term business operations rather than long term business perspectives. Proper spending on IT is very important for the banks belonging to Asia Pacific region. But only spending money will not be enough for the banks. Banks from both matured and emerging markets of Asia Pacific region should take leaf out of the best practices from European banks (Aritomo, Desmet and Holley, 2014). International banking system is going through very turbulent periods and to maintain sustainability in this period the banks need to focus towards strategic value creation with the help of more improved IT operating model. Article 2: The global financial services and international banks went through severe crisis when the global financial meltdown struck the world. As the modern day world is boundary less so the impact had cascaded reactions in every part of the world. Even different wealthiest nations like America and Germany had to come up with some financial assistance to rescue ailing organizations. Subprime American mortgage markets were tanked like anything. The effect was felt globally. During that time global financial scenarios were so uncertain that banks and different financial instruments started to fail. According to the comment of Mark Lange (the ex US presidential speech writer), unregulated derivatives and zero trade on public exchanges had made the situation worse. As a result, different financial organizations were able to hide some important details. Securitization was a financial instrument for which the subprime crisis occurred. According to the former economic editor of BBC, even credit rating agencies were paid to provide good ratings (Shah, 2013). As the organizations offered good ratings people trusted them and were encouraged to take different financial products. Bank like Lehman Brothers went for mortgages and wanted to securitize all their loans but it was beyond their expertise and core competence. The result was very prominent. It was the first global bank that collapsed under the severe financial crisis. Different banks stated to buy securities from other banks which were very risky and were utterly counterproductive at that point of time. Collateral Debt Obligations made the situation worse as these obligations are very complex and often can hide bad loans. According to Evan Davies, an American financial observer, at that point of time banks were exposing themselves in front of huge risks. At that point of time financial instruments which were made for risks reduction back fired ironically. As the situation was getting worse trust in the financial market reduced drastically. People started to panic after noticing different problems. Different lenders wanted their money back as the assets were falling. There were no deposits left with different investment banks brought their downfall. Securitizing came into the picture for battling different financial risks. Different attempts were made to secure loans and those attempts were not at all illegitimate, but due to the unique global financial scenarios those became inappropriate. Banks at that point of time were over confident as they thought that they had chalked out how to mitigate risks. It had encouraged them to play with the fire and in the course of making more profit everything went out of control. The scale of the crisis was massive. As far the analysis of Bloomberg, 33% or $14.5 trillion of whole world’s companies valuation were lost due the crisis. Different European countries spent almost $2 trillion as bailout packages. More are waiting in the queue. This situation has made it very clear that rethinking is important in the sector of economics. Financial reforms have significant importance for the sake of resistance. The Bretton Woods system also should be restructured to resist this type of consequences. WTO should take more constructive responsibilities for the smooth operations of international trades. International financial institutions like IMF and World Bank should be reformed for preventing any future damages. Article 3: It has been noticed that since the long time Africa is a significant attractive destination for banks. It is regarded as highly untapped global financial destination. As a result, different national and international banks are investing here as well as trying to expand their business operations. But returns are not at all meeting their satisfaction levels. The whole region may be very vast and full of natural resources but there are certain places like Tanzania and Senegal where accessibility to a bank is very limited. High differences within a country are also a reason behind the less return. Situations are very different in different cities within a country. There are certain places in Africa where banking systems are very modern and state of the art facilities are present. In contrary there are certain places where people keep their money under their mattresses. There are certain remote locations in the region like sub-Saharan desert of Africa where only one fourth of people have accounts in the financial institutions like banks. Only 3% people of that region use credit cards which is not at all a suitable environment for the banks to get expected returns. Banks face serious challenges to reach up to those places because operating expenses and setting up costs will increase without any guarantee of profitability. But still the banks are waiting for the improved GDP scenario. In this context mobile banking and prepaid cards are providing some sign of reliefs to the banks. Different regional and national banks have been boosted very well by Master Card and improved banking technologies. Now they are making different international banks run for their moneys. African banks are redesigning their computer systems and they are doing from the scratch. According to Al-Noor Ramji (banking technology company), African banks can cut down their cost to income ratio by 30% with the help of modern computers. On the other hand, banks from developed countries can limit this ratio up to 50% with their old computer systems. It has been noticed that in recent past different international banks have left the region. Different French banks and bank like HSBC have left the region for certain reasons. All these retrenchments have created lots of opportunities in front of different regional and national banks. Some of those banks are South Africa’s Standard Bank, United Bank for Africa and Ecobank. Global Financial crisis also impacted the situation as different regional and national banking organizations blocked their global expansion planning and focused hard towards their domestic business operations (The Economist, 2013). At that point of time it was not possible for banks to manage their global operating costs. Regional banks for their retail operations prefer bottom-up strategy. In this system banks have to receive cash from the ground levels for which local presence of branches are very important. Foreign banks face serious problems in this aspect. To resolve this problem either they have to acquire any local bank or have to make their own infrastructures. Top down approach of selling government bonds can be good idea for foreign banks to increase their presence without too much physical expansions. The region has significant potentials as far as returns are concerned but banks need to take risks for longer period of time and they must be patient. Article 4: The modern world is ever-changing. With its changing trends, technologies are also changing. As the technologies are changing, nature of crimes are also changing. Accounting to a survey of global account firm KPMG, different financial services face serious threats from cybercrimes. Global managers are seriously worried about this threat. The recent study made by KPMG to reveal that 51% of global organizations consider themselves as easy target of cybercrimes. The researching organizations also has pointed out that 68% of global organization use less than 20% of their IT budgets for battling cybercrimes. It is not at all a satisfactory scenario according to the magnitude of the issue. It has been noticed that global cybercrime scenario in the context of financial services has changed a lot. Cybercrimes have significant impacts in international banking and financial services. Financial institutions across the world are significantly bearing the brunt of this technological challenge. By the means cybercrime, criminals can make unauthorized and illegal transferring of moneys from one account to another account. This kind of activities can certainly dent the images of organizations across the world. Apart from unauthorized money transferring, productivity and efficiency of organizations can also be affected negatively by this crime. According to KPMG this is the high time for global management to address the issue seriously (The Economic Times, 2014). Recently one Cybercrime survey was done in India where almost 89% of total respondents admitted that cyber crime is the most serious threat for their organizations. The survey also indicates that global financial service sector has much more threats from cyber crime compared to other sectors like infrastructure, communication and entertainment. Internet banking and brokerage can be the softest possible targets for the attackers to perform their unholy activities. Most common patterns of cyber crimes are under attack of Phishing on the online banking process, illegal replication of Debit cards or ATM cards etc. Online banking users are generally targeted by the cybercrimes. It is very clear that most of these attacks are for achieving unholy monetary interests. Now days the situations also have worsen because there are several illegal and large set of syndicates are behind these kinds of crimes. Lots of bobby traps are present in the web world which can lead towards cybercrimes. The crime has become so serious that even cyber attackers are categorized on the basis of their technological skills, educations, age group and motivations. Often for the unethical usage of their technical knowledge cyber attackers get lucrative amount of money. References Aritomo, k., Desmet, D. and Holley, A. (2014). More bank for your IT buck. Retrieved from: http://www.mckinsey.com/insights/business_technology/more_bank_for_your_it_buck. Shah, A. (2013). Global Financial Crisis. Retrieved from: http://www.globalissues.org/article/768/global-financial-crisis. The Economic Times. (2014). Financial services more prone to cybercrime: KPMG. Retrieved from: http://articles.economictimes.indiatimes.com/2014-07-21/news/51830721_1_cybercrime-survey-cybercrime-threats-51-percent. The Economist. (2013). Continent of dreams. Retrieved from: http://www.economist.com/news/finance-and-economics/21572768-across-africa-banks-are-expanding-their-returns-arent-continent-dreams. Read More