Competitive Conditions In Banking Industry Analysis

Critically analyze the competitive conditions in the banking industry

1. Introduction.

2. Critically analyze the competitive conditions in the banking industry.

2.1. Competition definition.

In twentieth century, there were many competition theory appeared such as: Theory of Michael Porter, JB,Barney and P,Krugman…

Through the perspective of competing theories, competition is not canceling each other out of the participants, but the competition is real force for the development of enterprises. Competition contribute to the advancement of science, competition helps the actors know more esteemed opportunities and the advantage which they have been, competition brought prosperity to the country.

Through the competition, the participants in determining

• Technological ability: In banking environment, the application of technology is the one of factors can create the competitive power of banks. To enhance the products for high quality products to meet all of the requirements of customers, the demand of technology is very important. Technology will participate to make changes to spread the unique and more convenient. Today, the trading banks are develop and implementing the high-tech developments and internet’s products service. Technological characteristic as a measure of competition, especially in the field of payment sector and the other internet’s service.

• Banks competing on price: (BOOK page 15+16 unit 1): “In principle, we should like the funds to flow to their most productive use and to do so at lowest cost”. (Money,Banking and Finance, n.d.)And this principle can be understood as people will choose the banks that have most productive and lowest cost. First, banking system must be competitive. Banks whose costs are too high because they are inefficient or try to raise their prices to earn excess profit and If one bank charges to much it will lose business to cheaper competitors. The presence of competition encourages what is called operational efficiency, the provision of a good quality service at the lowest possible price. Secondly, banks

The first mention is that they have strong financial capacity: they have abundant sources of investment from major financial companies or even individual investment, they have abundant source of deposits from the customers. Moreover, more specifically, governments and central banks usually sponsor the big banks. That is when anything happens to the big banks as losses or problems with liquidity risk caused confusion for customers, the central bank will stand guarantee for big banks. Phenomenon that is "too big to fail". The big banks will rush to invest in the project with high profit but also great risks. But large banks may also face difficulties in extending relationship loans because these banks are on average. Headquartered at longer distances from potential small business borrowers. One theoretical study found that relationship lending diminishes with “informational distance,” or the costs of generating borrower-specific information, which is likely to be associated with physical distance (Hauswald and Marquez