Investigating Banking Sector's Role in UK Economic Growth & HSBC Case

This report investigates the influence of the banking sector on economic growth and development in the UK, using HSBC as a case study. It begins by defining economic growth and the role of the banking sector, then outlines the research questions, aim, and objectives. The literature review explores the activities of the banking sector, its role in UK economic growth, and the relationship between the two. Research methodology details the data collection and analysis methods. Data analysis and interpretation presents findings, while the conclusion summarizes the key points. Recommendations are provided to improve the banking sector's contribution to UK economic growth. Desklib provides access to this and many other solved assignments for students.

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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What is the role of banking sector on economic growth and development of UK?
According to the Teresienė, Keliuotytė-Staniulėnienė and Kanapickienė (2021), banking
sector is the backbone in the development and growth of economy of any country. Financial
support by banks benefit the economy of the country by increasing the saving or investment
activity or by allocating the resources in most productive way. Banks or other institutional
system helps UK in developing and increasing their economic growth. These are the following
reason in economic growth and development of banking sector in UK:
Deciding the rate of interest: Bank of England is the only bank in UK which is responsible for
deciding the rate of interest that has to be paid in the time of inflation. This is done with the
proper analysis and then the rate is decided. This is done to create an economy which is financial
stable with proper functioning.
Helps in removing deficiency: The UK economic is at developed stage but every
country need to develop their economy in such a way that there is an adequate capital formation.
So any deficiency in the capital formation are been removed by the banking system of the UK.
The countries financial institution helps in mobilising the saving of the community by investing
them in such a way that will be beneficial for both i.e., for country as well as for community
(Chen, Nalluri, Lin and Lin, 2021). As the banking system of UK dispense the savings through
various investment schemes this helps in building of the nation by optimum allocation of
financial assets.
Creating employment opportunity: The hit of Covid pandemic is so hard that most of
the employees of the country losses their job. The employment rate is quite good in UK but not
that much which can help in development and growth of economy. So the banking sector provide
resources in term of financial to the industries of different sector and encourage the people of the
country to start their business which helps in creating more employment. The jobs generated by
the banks of the UK in every financial year is more than that of other. So indirectly they are
growing the economy of the nation.
Providing loans to foreign currency: Foreign currency is a great source in economic
development. The loans granted on foreign currency by various UK banking sector is for setting
new firm or projects. Financial institution and banks also support business to diversify and
expand their market outside the country. They also help in importing of the goods and services
which indirectly increases the economy.
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Balanced development: UK banks like HSBC Holdings, Lloyd Banking Group, Royal
Bank of Scotland Group and Barclays are enhancing their operation worldwide. These banks are
diversifying their activity in different part of the country. They are diversifying in rural and
urban areas. This is done by the banks so that to balance their rural development region and
economic growth (Guping and et. al., 2021). The bank of England plays a vital role in providing
balanced development in the country. This bank uses the financial resources in such a way that
any surplus amount is there in developed city they transfer it to the rural town in the country for
evolve their community. This reallocation of resources by banking sector helps in economic
growth of the UK.
Implements the monetary strategies: Policies and strategy in UK are been made and
planned by the bank of England. The other banking system just implements these policies for the
economic growth. Bank of England depends upon these banks for successful implementation of
these strategies throughout the country. Policies like inflation rate, interest rate, trade practices,
import export duties amount etc., are been made by the head bank.
Boost the saving habits: The commercial banks of the UK try to boost the saving habits
of the citizen by offering various schemes to them. They attract the people by providing high rate
on their saving amount (Zhang and et. al., 2021). Other financial institution rather than
commercial bank also designs different promotional schemes for their consumer so that people
start saving amount instead of spending. They open different types of accounts with various
interest amount. Accounts like saving, commercial, current fixed etc. This role is played by
them so that the amount received by it can be invested in economic development of the country.
It also plays as a sources of fund to the banking sector.
Development of agriculture sector: Agriculture sector is the most important area if the
country wants to grow their economy. Major of the country financial funds are been generated
through this sector. UK banking sector give more importance to this sector as the product
produce by this are bean export to other country with higher price. To develop the agriculture
sector, they grant loan to those farmers who need it at very low interest rate. Traders of these
commodities are provide loans with different schemes and low mortgage. One of the vital role
that UK banks are played is that they open semi banks in the rural area of the country which can
provide credits to the small farmers. This sector is the best way for any country to enhance their
economy in wider way.
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Granting government spending: Banks play a role of an agent for government. All the
government spending is being promoted by the commercial bank of that city. Same in the case of
UK. The UK banks also act as a mediator from the expenses incurred by the federal government.
They provide funds to the government which was used by the authority in developing the
economy. They issue bonds and security, treasury bill on behalf of the government (Naseer and
et. al., 2021).
These all are the role that are being played by the banking sector of the UK so that their economy
can be boost and they can provide help to the citizen of their country.
What is the relationship of banking sector and economic growth?
According to the Coccorese and Shaffer (2021), banking sector performs various functions in
economy, it increases the allocation of scarce capital by extending credit to gain productive
result. The one of the benefit which is gained by economy through banking sector is that it offers
liquidity by funding illiquid assets with liquid liabilities. Though this, bank help savers so that
they can manage their liquidity risk and enable long term investment. Banking sector plays an
important role in economy as they facilitate money movements between fund suppliers and fund
demander. The money movement occurs by attracting savings and channelling these savings as
loans in order to finance different economic activities that help in encouraging economic growth.
In order to grow economy, a developed baking sector is required. The banking sectors of the
economy must be stable and sound so that they can absorb the shock. A well-developed banking
sector plays an integral role in improving the economic growth of country. The link between the
economic growth and baking sector has broadened the financial services and products that satisfy
the rapid expansion of economic activities. The banking industry is playing vital contribution to
accelerate the process of economic development. There is a positive relationship between the
banks and the economy, which means that if any problem occurs in one it will automatically
affect the other. The desire of the household to save stimulates and which enhance the degree of
savings. The savings which individual invest is used by the banks to create the flow of capital in
the economy (Mtar and Belazreg, 2021). Bank creates the new capital in the country which helps
them to use in the process of growth. Banking sector open the doors for many stakeholders to
raise the amount or invest in bank which help them to maintain the quality of financial services
which help the economy to grow. Banks not only uses the money of the citizen but they also
allow foreign direct investment which is a great source to raise the economic condition.
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Economy development not depends upon the factors that lies inside the nations but also depends
upon other nation also. Banking sector openness has directly affected the growth of the economy
where they improves the financial services access and indirectly by helping the financial
intermediators in improving their efficiency. Both of these help in reducing the cost of finance by
using the capital accumulation for economic growth. The commercial institute also grants loan to
the agriculture unit which is the greatest source for the economic development. They provide
capital to the farmers in lower rate so that agriculture activity can be increased and individual can
raise their capital which they can use for various agricultural activities. The agriculture activity
helps in economic development as what is produced in the country is not only consume by the
citizen but also export in the other currency which helps the government of the country to get
foreign currency which they can be used in their development. Agriculture is the main source of
the government income as the product that is produced in the country is exported in other
country at higher price. The next role the banking sector play as they grants many subsidies to
the small and medium size enterprise which help them to invest in diversification and increase
productivity (Naseer and et. al., 2021). The SMEs are increasing day by day which help the
country to reduce the rate of unemployment. If the unemployment rate will decrees then this will
grow the country as there is vast production which will be there also the personal income of the
individual rise and government will receive more tax which they can use in technological
advancement. If the country start getting more technology then all the work can be done in
effective and efficient manner and the burden will also decrees. Technology plays a vital role as
they help the country to develop and innovate product in less cost and these product can be sale
outside the country and help the government to earn high interest rate on trade. Banking sector
are interlinked with the economy as they help the government by paying their debts so that
balance of payment can be balanced which help the country to attract investor which can either
invest in national company or can built their MNCs over there.
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