Standard Chartered Bank Cost Analysis

This report investigates the rising cost-to-income ratio of Standard Chartered Bank (SCB) in Hong Kong, a key indicator of profitability and competitiveness within the banking sector. The report reviews relevant financial literature, defining the cost-to-income ratio and its implications for investor confidence and future funding. The methodology involves a literature review to identify strategies for reducing the ratio. The analysis focuses on the potential benefits of IT-based solutions, including automation, offshoring back-office activities, and implementing multi-channel strategies to replace branch operations. The conclusion emphasizes the need for SCB to address its high cost-to-income ratio through strategic IT investments to maintain competitiveness and attract investors.

Part B
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1. Introduction the problem:
Running profitably is quite challenging for the organizations which operate in the banking
industry. The banking industry is highly competitive in nature and so, the organizations in this
industry face a number of challenges to remain profitable. Standard Chartered Bank (SCB), one
of the major players in the banking industry, is also facing issues to maintain its cost to income
ratio. The cost-to-income ratio is one of the major indicators of profitability. However, in Hong
Kong, SCB is found to have the highest cost-to-income ratio among the locally operated banks.
In the recent years, the Cost to Income ratio of the bank has increase by 5.2% in a year (Lestari,
2018). If the ratio increases continuously, the Standard Chartered Bank can lose its profitability
and the competitiveness in Hong Kong market. The current research deals with analysis of the
issues faced by SCB because of the rising rate of cost to income ratio. The research includes
discussion on the relevant theories and identification of the ways to mitigate the problems for
SCB.
2. Review the financial literature:
The cost to income ratio or the C/I ratio indicates the ratio between the cost of running the
business to the cost of operating income. The C/I ratio is one of the key financial measures which
are used for evaluating the financial performance of banks (Rasika & Sampath, 2015). From the
cost to income ratio, the investors of an organization can understand how efficiently the firm is
operating. A rise in the C/I ratio indicates that the cost of running the organization is also
increasing. In other words , increase in the C/I ratio indicates that the organization is running less
efficiently. So, the increase in the C/I ratio can make the business less attractive to the investors.
As result, the firm can face severe funding problems in future if the issues associated with higher
C/I ratio are not managed effectively.
3. Explain the methodology used to address to the problem:
In this research, literature review is done to identify the ways for addressing the problem
associated with higher C/I rate. The C/I ratio of the banks can be reduced in several ways. Opting
for the IT based applications is one of the techniques to reduce the operating cost of the banking
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organizations (Chu et al.2016). The organizations can implement a range of IT strategies such as
introduction of the automated processes, off shoring the back office activities and replacing the
branch activities with the multi channel strategy (DeYoung & Li, 2015).
4. Provide the analysis/findings:
Use of the automated processes can reduce the need of human capital. As fewer workforces will
be required, cost of operation for the organization will also reduce (Ngari & Muiruri, 2014).
Replacing the branch operations with the multi-channel strategies is also an effective way to
reduce the operating cost by avoiding the branch operations. Through opting for off shoring the
back office activities, the businesses reduce the amount of resources needed by them and it also
cuts down the operating cost.
5. Conclusion:
Discussion on the issues faced by SCB indicates that the organization needs to reduce the C/I
ratio for remaining competitive and attractive to the investors. The organization can invest on IT
applications to reduce the C/I cost.
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References:
Chu, C. C., Teng, Y. M., & Lee, H. L. (2016). Does Law Matter for Corporate Governance and
M&A Performance in Banks? Evidence Under the Financial Institutions Merger Act in
Taiwan. Emerging Markets Finance and Trade, (just-accepted).
DeYoung, R., & Li, L. (2015). Publicly Traded versus Privately Held Commercial Banks:
Capital Access, Growth and Financial Performance.
Lestari, D. (2018). Corporate Governance, Capital Reserve, Non-Performing Loan, and Bank
Risk Taking. International Journal of Economics and Financial Issues, 8(2), 25-32.
Ngari, J. M. K., & Muiruri, J. K. (2014). Effects of financial innovations on the financial
performance of commercial banks in Kenya.
Rasika, D. G. L., & Sampath, H. R. (2015). Impact of credit risk on financial performance of Sri
Lankan commercial banks.
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