Fundamental forces of change in banking sector

Fundamental forces of change in banking are the changing behaviour that are effecting the banks in the world today. Many banks have moved to non-traditional banking services to earn fees that can offset the volatility in earnings from traditional loans and better help growth earnings. Such factors are:

a) Deregulation and re-regulation
Deregulation is the process of eliminating existing regulations. Example was the effort to removed interest rate ceilings on allowable rates paid depositors and charged on certain loans and also expanded the range of products & services that banks can offer. Interstate banking and branching restrictions have similarly been eliminated. Re-regulation is the process of implementing new restrictions on banking activities.

b) Financial innovation
Financial innovation represents the systematic process of change in which the financial institutions create new financial instruments, operating policies and financial markets. This enables them to circumvent restrictions and continue growth.

c) Securitization
Securitization is the process of converting assets into marketable securities. It enables banks to move assets off-balance sheet and increase fee income. It increases competition for the types of standardized products, such as mortgages and other credit-scored loans and eventually lowers the prices paid by consumers by increasing the supply and liquidity of these products.

d) Globalization
Financial markets and institutions are becoming increasingly global in scope. Firms must recognize that businesses in other countries as well as their own are competitors and that international events effect domestic operation. Geographic boundaries do not restrict financial transactions.

e) Technological advances
Technological advances relate to payment services and how customers conduct banking business; through debit and smartcards, telephone banking and the internet. With internet banking, mean that distance is no longer a limiting factor. Advances in technology also reduce the need for an intermediary by providing easy access to information.

Sime Bank existence in Malaysia banking sector from year 1996 to 1999