Bank Profitability Analysis: Opportunities, Threats & External Factors

This assignment focuses on analyzing the profitability of Royal Bank of Scotland (RBS) by evaluating its internal opportunities and threats, such as commodity trading partnerships with China, rural banking initiatives, global expansion plans, and low-quality loan systems. Additionally, it examines how external macro factors like government policies, Brexit aftermath, technological advancements, and changes in immigration laws impact RBS's strengths and weaknesses, ultimately affecting its economic growth.

Business Environment

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Different types and aims of those firms...........................................................................1
P2. Size
and scope
of different types of
organisations..........................................................................................................................3
TASK 2............................................................................................................................................3
P3. Relationship between
different organisational roles and how they
link to goals and
structure.................................................................................................................................3
TASK 3............................................................................................................................................5
P4. PESTLE analysis of Royal Bank of Scotland and HSBC................................................5
TASK 4............................................................................................................................................6
P5. Internal and external analysis of banks to know their strengths and weaknesses............6
P6. Strengths and Weaknesses interrelate with external macro factors.................................8
CONCLUSION ...............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business is a set of activity which deals with the production of good and services by a
organisation. Manufactured goods are sold in the market and the owner company earn by profit
by them. Businesses are not confined to this particular description but there are some activities
which are also part of it. For success of any enterprise there are some factors which need to be
taken care off. These elements make a business environment and any variations in these would
effect the company. Changes could give positive as well as negative results to them. It will
influence almost every aspect of an organisation, it can be nature, its location, prices of their
products, distribution system or the personnel policies. So every component of the surrounding
like socio-cultural, political, legal and technological factors need special attention. This report
will be dealing with various concepts of business environment, its nature and significance.
HSBC, Royal Bank of Scotland and National Trust are the three organisation which will be taken
in account for this report. All three are categorised on the basis of their ownership i.e., private,
public and voluntary respectively. Royal bank of Scotland and HSBC are from banking sector
and are one of the prominent banks of UK.
TASK 1
P1. Different types and aims of those firms.
Businesses can be classified on different basis because it is hard to define it on any single
criteria. In the business there exist lots of organisation who has different goals and targets, these
all targets they want to achieve in specific period of time. Depending upon the nature, ownership,
size and revenues they can be categorised into different types. At larger level people generally
define organisations on the basis of their ownership. Ownership can be private, in which private
individual is responsible for all doing. Whereas there are companies exists in the market which
are under government control. Following are the types of sectors which are classified on the
basis of their ownership:-
Private Sector: This sector has companies which are owned by the private individuals
and are not part of government. They offer their shares to the public in the stock market and it
can be traded and exchanged privately. Such type of firms have a great significance in the
economy of UK because they add a value to different aspects of it. It generates a large
employment opportunities and help people to grow their ideas & innovations. Growth of this
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sector is a sign of good economy. Enterprises whether small or big which falls in this category
has ultimate goal of earning profits. They manufacture their respective products and sell them in
the market with different strategies. Selling gives them revenues which they can utilize in
different areas. Their business ideas and strategies are focused on increasing market share,
maximizing sales and increasing the productivity. Financing of this sector companies are from
savings of the owners, loans form banks and the subsidies which government provides. A private
organisation can have one or more owners and they can also operate into partnerships.
Depending upon the percent of the partnerships, their decision making depends. Sole traders,
partnerships and franchises can be some examples of this sector. They cab be also called as
corporations, limited companies, limited liability and unlimited companies depending upon the
where and how they are organized. HSBC which is a multinational bank, has made its mark in
the international market. In UK it is one of the largest bank.
Public Sector: This sector is totally governed by government and they exercise all the
activities of it. All its tasks are managed by the government officials or managers who are
appointed by the governing body. They can be owned by various types of government like
federal, provincial, state and municipal governments. Generally, these are related to power,
health, education, telecommunications and infrastructure. All the taxes which citizens of that
country pays are used for financing these type of industries. These firms provides a security to
their public by giving various benefits like fair prices of the products and services. In an
economy where all the market is covered by the private companies there might arise situations
when they are constantly increasing prices. So in that condition this sector will be of great
importance because they work in the interest of public. Such industries break monopoly in the
market because they know if there will be monopolistic situation, then that firm will control
market according to their needs. Royal Bank of Scotland has developed a trust among people and
continuously giving their services from last 280 years.
Voluntary Sector: The third sector of the economy operates its operations in order to
serve the people without making any profit. Their purpose is to add value to the society by
creating an impact from their initiatives. They know that if al will be well in the society then
automatically a country will grow in all areas. Such sectors consists of NGOs, charitable trusts
and social groups, who are constantly working for the development of people. Normally they
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work in rural areas and among backwards areas. National Trust is a part of voluntary industry
who are making their efforts in saving cultural heritage of UK.
P2. Size
and scope
of different types of
organisations.
As discussed above companies can be of different types on the basis of ownership.
Private companies can be small and large depending upon their annual turnover, areas where
they are serving, number of people employed and how much operation unit they posses. Royal
Bank of Scotland and HSBC are one of the largest banks and frequently preferred by the
customers. Being the largest bank in Europe, it has approx. 47 billion US dollars revenues with
profit margin of 2.4 billion dollar all over the world. For handling all its operations it has
appointed approx 235,175 staff which are constantly working to satisfy the customers and
generate profits. Taking about their global existence, it has 4000 offices in 70 different countries.
They are giving almost all the services which a bank try to like retail banking, corporate,
investment, private banking, credit cards and different insurances. For attracting and retaining
new customers they are constantly focusing on their advertising campaigns. In future they can
look at different scopes and could create opportunities from it. As it has maintained the trust of
their customer, so this strategy can be used to make people know that what all things they can do
to improve customer life. Royal Bank of Scotland is one of the oldest and fifth largest bank by
market capitalisation. It has net income of 5 billion and giving employment to around 77900
people. It is giving their services in almost every country and has different subsidiaries like
NatWest, Isle of Man Bank and Drummonds Bank. They are offering personal, business and
private banking. Being the oldest bank still lacks in some areas like the advertising and can not
create new customers without. A new plan can be prepared to focus on the marketing through
use of different advertising platforms.
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TASK 2
P3. Relationship between
different organisational roles and how they
link to goals and
structure.
Every organisation has some or other objectives which can be achieved through different
functions carried out by its members. A bank generally have task related to customers and having
a face to face conversation with them. When a customer enters the bank their might be various
departments he might observe. According to his problem and work he will go to that respective
area and will ask that representative about the issue. There will be employees who will be
assisting him and will try to convince him. Whatever work bank staff do may be related to loans,
cards, insurance, money exchange, account opening and mutual funds. Following are the some
roles in banks:-
Managers: Managers are the main authority in a bank and can also be referred to as
branch manager. He is responsible for operation, administration, marketing, training and
security. Generally, he has to manage all the operations in a bank.
Financial Analyst: He is the person who advices customers on investments. For
example; an analyst in HSBC could give suggestions to his client on stocks and bonds they can
invest in to grow their pension plans. It is a tough job because a lot of research has to be done.
Bank Teller: Although this role does not have much pressure on it, but bank heavily rely
on this. In HSBC people they answer questions of the clients and explain them the bank products
like loans, cards and insurance. As it deals with lots of people in a single day, he should have
variety of skills.
Loan Officer: This department always have high demand because every individuals
require loans according to their needs. They meet with customers and review their financial
history. After making sure that this person is eligible for loan, he process his request to higher
authority.
HSBC bank has a structure which is created according to the job roles in it. Following are
some of them:-
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Human Resources: It is the department who takes care of the administration and
development in the bank. They hire & trains staff for HSBC and make sure that all the resources
used properly. They introduces new strategies which increase the social value of the bank.
Services: Such department takes care of technology like Internal Control(IC), network
service center(NSC) and hub. This is important because their all the data is stored in servers and
as they totally believe in computer based banking.
Financial Control: This level in the bank deals with foreign correspondence, payments,
treasury and PCM.
Marketing: Banking products are introduced through marketing and convincing people
that they should take that service. Marketing involves direct sales, promotion through
advertisements and marketing administration. Direct sales will give more benefits to the bank
because they would better make them understand through face to face interaction.
TASK 3
P4. PESTLE analysis of Royal Bank of Scotland and HSBC.
Business environment would be influenced by any change in the external factors. So they
are as useful as internal factors. Management should make strategies by taking care of the
possible external factors which could impact their operations. Organisation has little control over
these factors, so they have to regularly carry out research to find positive and negative impacts.
To identify the positive and negative impacts of the macro environment on the business
operation, a PESTLE analysis can be done.
Political and Legal: As Britain is going through different political changes. Brexit will
affect both the banks and London terrorist attacks have hit them badly. This unstablity in the
political environment would be responsible for any crisis. Any customer protection laws will also
definitely impacts the sales. Their operations can be affected by business regulations by different
countries. Some might have hard laws where ease of doing business is difficult. Increase in direct
and indirect taxes, makes them increase their rates.
Economic: Any activity of the competitors in the same sector will effect their businesses.
Increase in the gross domestic product is a good sign and as people are loosing jobs that means
they will not able to take any loans from banks. High inflation rates in China and India during
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recession. Import cost in developing countries rising due to increase in the crude oil prices. Both
the banks are in competition for same resources.
Social: Any change in the trends and lifestyle of the people can impact the customer.
Student loan rate should be decreased which will help them in maintaining their image among
people. Almost everybody wants to give their child best education but lack of financial resources
deprive them from doing it. Both the banks are affected by the circumstances of the society in
which they are in use. They try to give equal chances to every society so that each can be
benefited from their services.
Technological: By changing the pattern of work and shifting their services to more
advanced form, has affected the working of HSBC and RBS. They are constantly searching for
di9fferent ways of banking and finding customers through internet. Any customer query can be
resolved through internet in quick time. It can increase their work efficiency and it has helped
them in knowing the recent trends in global business.
Environment: Both banks should focus on adding value to the environment. They can
adopt the strategy of green environment near their offices. Planting trees and adopting CSR
model would increase their trust among their customers.
TASK 4
P5. Internal and external analysis of banks to know their strengths and weaknesses.
Strengths:
 HSBC banks are well capitalised, it has been able to stand with economic viabilities and
credit crises which have wedged on its competition level.
 The bank does not need any help from government bodies because it has mange to
capitalise its finance for any future crises which arise in economy.
 It has its presence in various competitive markets which are helpful in creating strong
positions in entrance of other banks.
 It has many branches in diversify markets and thus financial risk are reduced to a greater
extent.
 Long term profitability are helpful in cutting cost for its various operational activities in
an effective manner.
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 It has expanded its operations in various financial markets and thus evaluation of
financial products has helped to increase revenues so that looses can be controlled to
some extent.
Weakness:
 Its presence with small scale business sector had prone to various risk and thus decrease
in profits.
 Bank has involved in various sub prime markets in US and have experienced financial
losses which had affects its brand reputation to a greater extent.
 Lay-offs have been counted as measures related with cost cuttings.
 Branding have been focusing on making position in global markets.
Opportunities:
 Good capitalisation are helpful in acquiring addition assets to its position in global
market.
 Opportunities for earning additional market shares by acquiring other segments involved
in banking sector.
 Global positioning of banks are helpful in reducing impacts of externals factors which are
accompanying with finance and credit issues which have direct impact on competition.
Threats:
 Defaults in housing sector due to increase in interest rates and reduction in home values.
 Changes in economic conditions can reduce profitability to greater extant. As prices will
not be stable in economy and fluctuations in prices will have direct effects on profit rates.
Royal Bank of Scotland
Strength :
The major strength of this bank is government of UK provide adequate support to them.
RBS always having a back up plan for facing trouble, its global franchises makes it leading
financial group across the world. It has innovative technology for their banking procedure. They
have expert people in their organisation for providing expertise domains. They actively taking
part in sports activities, events and teams.
Weaknesses :
Major weakness of this bank is losses through large loans, these long term loans
impacting on profitability and capitalisation. This makes the bank expose widely in domestic
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economy. They apply less penetration in emerging economics such as India, china etc.
decreasing in operational efficiency impacting on total margins of bank.
Opportunities:
This bank earn large profit due to its long run plans. These commodity trading are helpful
in increasing profit. They repositioned as biggest financial service provider. Their biggest
opportunity is partnership with china which is helpful in economic growth. They started rural
and social banking for giving benefits of people who are live out side of city. RBS at the
condition on that they get global expansion in country across the globe.
Threats :
They have low quality loan system, if in future person wants to take loan from bank then
it will arise conflicts for them. They have global financial and Govt. policies crises.
P6. Strengths and Weaknesses interrelate with external macro factors.
As discussed above external macro factors plays important role to play in the growth of
any business. Strengths and weaknesses of the banks has direct relation with its macro factors
because strengths of the business can change the situation of external factors. Big banks holds a
special value in the economy of the country. They make sure that UK does not go from any
financial shortage. For this they expand their services to every type of customer. Royal Bank of
Scotland is an public organisation, so people trust them and take more services. They have a
backup plan if UK goes from any crises and after Brexit they has came out with a strong
strategies. These policies has given new hike to the economy of UK. Although, it is the largest
bank but their weakness of giving loans to the unorganized sector has given them big losses. Its
revenues is large, so they any small changes in the government policy or tax slab would not
effect them much. Before Brexit there was less restrictions in immigrants laws but after that
government will come out with more strict laws. This will prevent people from other EU
countries to enter Scotland and Ireland, this will be a great loss to Royal Bank of Scotland. Their
customer numbers will decrease, thus decrease in revenues. As HSBC gives their services in
different countries that make them aware about the marketing condition of that nation. People
belonging to different countries have different demands and according to those they design their
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policies. Technological advancement in UK will give them because their revenues are high and
they can easily adopt those technologies.
CONCLUSION
From the above report it is concluded that every company is affected by the environment
they are existing in. There are various factors which widely impact their business operations.
Organisations have little control over these external factors, so they should design a policy which
would someone pre-assume the future situation. HSBC and Royal Bank of Scotland are the big
banks of UK and holds a important value in the country's economy. They should work on
enhancing the strengths and reducing the weaknesses, so that they can gain competitive
advantage.
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