Influence of Banking Sector in Economic Growth in UK

Influence of banking sector in
economic growth in UK
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Contents
INTRODUCTION ..........................................................................................................................3
Overview of the topic ..................................................................................................................3
Background of the organisation ..................................................................................................3
Research questions.......................................................................................................................4
Research aim................................................................................................................................4
Research objective.......................................................................................................................4
Rationale of the research .............................................................................................................4
Structure of the dissertation ......................................................................................................5
LITERATURE REVIEW ...............................................................................................................6
What are the different activities of banking sector?....................................................................6
What is the role of banking sector on economic growth and development of UK?....................9
What is the relationship of banking sector and economic growth?...........................................11
RESEARCH METHODOLOGY ..................................................................................................12
DATA ANALYSIS AND INTERPRETATION ..........................................................................15
Frequency distribution table......................................................................................................15
Data interpretation.....................................................................................................................17
CONCLUSION..............................................................................................................................34
RECOMMENDATIONS...............................................................................................................35
REFERENCES .............................................................................................................................37
APPENDIX ...................................................................................................................................39
Questionnaire ............................................................................................................................39
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INTRODUCTION
Overview of the topic
Economic growth introduces to an increase within the actual output of products and
services in the nation. Economic development leads to quantitative as well as qualitative changes
within the country. Thus, development reflects progress in the quality of life within a country. In
addition, growth and development of economy are an increase within the production of economic
products and services. Therefore, it is important for each and every country to increase their
economic growth and development. In simpler words, economic growth is defined as increase in
the production of services and goods in an economy (Coccia, 2018). Economic growth
contributes in increasing technology, human capital, labor force and capital goods. Generally,
economic growth is measured in relation to increase in aggregated market value of additional
services and goods produced. Banking sector is a section and an industry of the economy
indulged in holding financial assets of others and investing financial assets as a leveraged way
for creating more wealth. This sector also involves the regulation of banking activities through
government insurance, mortgages, agencies, credit cards and investor services. The present
research is concerned about the relationship between banking sector and economic growth and
success. This report covers activities and operations of HSBC bank operating in the United
Kingdom. For collecting information primary and secondary sources will be used to gather
appropriate data so that defined aim and objectives could be easily attained.
Background of the organisation
The chosen organisation for the current research is HSBC Bank plc. It is known as British
multinational banking and financial services organisation. The international network of HSBC
has over 7500 offices around 80 countries and territories in the Asia-Pacific region, Europe, the
Americas, the Middle East and Africa. This bank is known as one of the major clearing banks
operating in the United Kingdom. It is a wholly owned subsidiary of HSBC holdings. It operates
under industry of finance and insurance (Haralayya and Aithal, 2021). It is founded in 1865 in
HongKong. The headquarters of the company is located in London, United Kingdom and
Birmingham, United Kingdom.
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Research questions
 What are the different activities of banking sector?
 What is the role of banking sector on economic growth and development of UK?
 What is the relationship of banking sector and economic growth?
Research aim
To investigate the influence of banking sector in economic growth and development of
UK country. Case study of HSBC bank.
Research objective
 To analyse different activities of banking sector.
 To identify the role of banking sector on economic growth and development of UK.
 To evaluate determine the relationship of banking sector and economic growth.
Rationale of the research
Main rationale behind doing this research is to identify the roles of banking sector in
improvement of economic growth and development of UK. Along with this, banking sector has
direct effect on economic growth and development by enhancing the entrance to financial
services. This also helps in enhancing efficiency and effectiveness of financial intermediaries. In
2019, the banking sector contributed £132 billion to the United Kingdom economy, 6.9% of total
economic output (Financial services: contribution to the UK economy, 2021). Therefore, with
the help of this research, it is easy for UK government to identify the contribution of banking
sector in economic growth and development.
Significance of the research
The current research holds greater significance because this research has taken out
information about the importance of banking sector in increasing economic growth and
development in the United Kingdom. The report will highlight the various activities of banking
sector that have major contribution in the economic growth and development. It has covered the
data for showcasing the relationship between economic growth and banking sector.
Problem statement of the research
The main problem that is covered in the research is that when activities of the banking
sector is not operated effectively and efficiently it creates problem in the growth and success of
an economy. It shows that there is negative impact on economic growth when different
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operations and activities of bank are not operated efficiently and effectively. Hence, if proper
attention is not given to banking activities of HSBC then it will create negative impact on the
economic development, success and growth.
Structure of the dissertation
This is significant part of the dissertation because it facilitates redder in identifying the
importance of each chapters in research completion. All these chapters are defined as below;
1. Introduction: This is first chapter that includes accurate information about the topic,
includes research aim, objectives and questions, background of the company and many
more.
2. Literature review: This is another chapter that helps researcher in collecting of
secondary data. There are various sources that facilitate in secondary data collection such
as books, articles, journals and many others.
3. Research methodology: This is a significant part of the research because it includes
different types of methodologies (Turnbull, Chugh and Luck, 2021). These types are
deductive approach, quantitative research, positivism philosophy, questionnaire and
many more. These are useful methodologies that turn to impact in attaining research aim
and objectives effectively.
4. Data analysis and interpretation: This chapter is important in evaluating gathered
information through research analytical technique. Within a research, quantitative data
will be gathered from questionnaire and for evaluating this, frequency distribution
analysis is used. This is an effective technique because it not takes maximum time and
cost (WORK, 2020).
5. Conclusion and recommendations: This is a last chapter that includes information
about entire chapters in clear and accurate manner. In recommendations, some
suggestions will be given to the banking sector in improvement of economic growth of
United Kingdom.
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LITERATURE REVIEW
Literature review refers to the process of gathering secondary data from different sources.
These sources are peer-reviewed articles, magazines, books and many more. All these are useful
and valuable sources within a dissertation for achieving research aim and objectives successfully.
Literature review has main purpose within a dissertation is to identify research gap. Within
present study, main gap is the influence of banking sector in economic growth and development
of UK country. In previous studies, there was lots of data available regarding the different
activities of banking sector but there was lack of information about the contribution of banking
sector in improving economic growth and development of UK. This is a main gap and for
addressing this, research questions are used as below;
What are the different activities of banking sector?
According to Kamani (2019), a bank performs variety of operations and this ranges from
primary or basic functions such as daily transactions at branches to others that could be the
agency or general utility services in nature. Banks perform different types of activities and
transactions for supporting their business of banking. These transactions involve accepting or
making payments, clearing, trading and settlement of custody and accounts. Understanding the
operational aspects of banking is very significant to understand the value chain of the banking
industry. There are many significant supporting tasks and activities operated by banking
institutions. The key activities of banking sector are:
Accepting Deposits: Deposits are the primary step of the loan operations as banks are
known as the lenders as well as borrowers of money. As borrowers, banks pay interest to
customers and as lenders, they offer interest and loans to customers. These deposits are
commonly deposited in fixed deposits, current account and savings account. The deposits in
current account could be withdrawn to extent of the balance without prior notice. Savings
accounts encourage savings of individuals. Banks offer interest rate as set by central bank on
customer's deposits. There are certain number of restrictions that on the withdrawal of amount
from these accounts and there are limited number of times to withdraw amount. There are fixed
accounts in banks that are generally known as time deposits. Banks provide high rate of interest
on these accounts in comparison to savings accounts.
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Lending of funds: The second main activity of bank is providing advances and loans to
the customers from amount received on deposits from different customers. The advances could
be made in the form of cash credits, discounting trade bills, overdrafts, consumer credits, term
loans, transport and many miscellaneous advances (GAZI and et. al., 2021). The funds provided
by banks contribute in a great deal to transport, trade, industry and other business operations and
activities.
Online banking: The growth of the e-commerce and internet has changed the banking
sector. Customers have now made great shift from branches to virtual banking. Online banking
has made activities of the very easy and customers could also make transactions while sitting at
their home or offices. Customers with internet on their personal computer or mobile could easily
get connected to the websites of bank and avail variety of banking functions and services.
Internet services has decreased the transaction cost and helped in speeding and easing the flow of
transactions.
Debit and credit cards: Credit cards are generally issued by banks. It is known as another
type of lending and they help banks to grow and also help the economy of a country. Issuing
credit cards is known as profitable type of lending for banking sector. It is being recorded that
credit cards have expanded greatly in the last few years. Banks compete continuously for the
business and provide different types and forms of credit-card accounts. There are many banks
that change rates with consumers and they also offer variety of discounts to the customers as an
incentive for purchasing and using the card. Customers generally use credit cards for buying
products and services on credit. This helps in moving merchandise and manufacturing process
continuously at faster pace in comparison to transactions that take place in cash. There are
certain risks that come up with usage of credit cards and the judicious use of credit cards assist
economy to grow and develop. Debit cards are also offered by banks to their customers but this
card is used as per the amount in the accounts of customers (Csikósová, Čulková and Janošková,
2016).
Overseas banking services: Banks provide financial services like payment accounts and
opportunities of lending to clients of foreign. The foreign clients could be companies and
individuals, although all international banks have their own policies. Most of these banks provide
different products and services for catering the requirements of their international clientele.
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Products of bank in this sector includes savings, mortgages, investments and offshore banking
clubbed with a wide variety of foreign exchange including spot and forwards transactions.
Investment banking: It involves broader range of services and it also includes assessing
investing requirements, evaluating asset structure and the liability-management needs, managing
portfolios of trading in securities, financial assets, currency and commodity, fixed income,
corporate finance, corporate advisory services for acquisitions and mergers and equity and debt
underwriting (Alam and et. al., 2021). Banks also provide services in relation to portfolio-
construction, development of investment policy, cash-flow analysis, portfolio rebalancing,
custody services and philanthropic services. Banks provide trading services provided by dealers
or brokers like selling and buying of debentures and shares on instructions from the client.
Wealth Management: Wealth management services are provided by banking sector. It
includes different financial services and products clubbed with advisory services from different
expert professionals. Wealth management services are offered to an affluent client, secure the
position in financial terms and make most of the amount over the long term. Different investment
avenues can be time deposits, international global trading, dual currency placement, foreign
exchange solutions etc.
Bill Payment Services: Banking sector provide services that are related to payment of
insurance premiums, bill payments, collection of dividends etc. Recurring payments could be
automated for the procedure of payment by using the facilities increased by modern banks.
Account holders could directly pay from their respective accounts or using their credit cards or
debit cards.
Remittance of funds: Banks also help in transferring funds from one place to another,
creating the broader network of branches that are inter-linked to each other. Many banking
instruments are in usage to enable transfer of funds from one account to other like pay orders,
bank drafts, mail or wire transfers. Banks earn nominal commissions by manner of bank charges
on some transfers (Mtar and Belazreg, 2021). Banks issue a draft for the amount at its own
branch that could be credited to other accounts which might be with a different banks or different
branches. Banks gather the amount on behalf of the depositors which is also called the clearing
process.
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