As is the nature of time, industries change and adapt to the current business conditions. So too has the banking industry. One of the oldest surviving forms of financial institution banks have been around for a pretty long time.
Banks were initially started as a place where people could store their riches comfortably and safely. Today, banks have developed into digital entities that offer financial services and products from the comfort of your couch. Yet, the industry still languishes in certain respects.
In this SWOT analysis, we are going to take a peek at the strengths and opportunities that the banking industry can take advantage of. We’ll also look at the weaknesses that the industry suffers from, and the threats that may seek to spend it in the near future.
So, without further ado, let’s dive in and take a close look at the swot analysis of the banking industry.
Following are the key strengths of the banking industry.
One of The Oldest Surviving Industries
With the advent of new technology, whole industries are often wiped out. The banking industry, however, has not been so susceptible. It has stood the test of time and helped the human race for a very long period. As life has evolved, banking has morphed and modified itself to meet the recent needs. From inculcating the habit of savings to helping people with financial instruments, banks today play a vital and indispensable role in society.
The Pillar of Financial Stability
The banking industry takes a vital role in ensuring the economic prosperity and financial stability of a nation. Banks contribute to the economy by fostering growth. They help the masses manage their wealth and become meaningful contributors to the national as well as the international economy.
Provider of Financial Instruments
Banks provide their customers with a large number of financial instruments. Some of the various products offered by banks are stocks, bonds, insurance and savings accounts. Further, banks have also adopted and integrated digital technology to provide online banking solutions.
Below are the 3 major weaknesses of the banking industry.
Susceptibility to Global Economics
The global banking industry is skewed. Europe has cornered over 50% of the worldwide market, making things pretty unbalanced. Even small changes in the currency exchange rates or spending and borrowing habits of the people of one major nation can cause the entire banking industry to take a hit. Such volatility is not desirable.
High Levels of NPAs
NPAs (Non-Performing Assets) are the bane of the banking industry. NPAs usually denote bad loans that cannot be recovered. This naturally leads to financial losses for the bank. NPAs can have a crippling effect on the banking sector, and the economy as a whole. Developing countries such as India face instances of high NPAs which have dealt a severe blow to the banking industry of the nation.
Lack of Rural Coverage
It has been observed that in most countries the banking industry focuses mostly on the urban areas, while rural regions are left neglected. This is a significant weakness in the banking industry.
A large percentage of the world’s population still lives in villages. This is more so in developing nations. By not catering to this demographic the banks are leaving a significant portion of the world population out of the ambit of their services.
Here are the opportunities of the banking industry.
The banking industry has always been dependent on technology. This is evident in the slew of digital services being offered by banks today. However, instead of resting on their laurels, banks should continue to adopt the latest technological innovations. They should concentrate on bringing out newer products and services in order to attract future generations.
Rural Expansion Opportunities
The limited presence in rural areas is one of the weak points of the banking industry. But it can actually convert this weakness into an opportunity. By expanding into villages and offering their services to the rural population, banks can expand their customer base considerably.
Human society is evolving both economically and culturally. In this dynamic landscape, the needs and demands of customers with rising income levels are bound to change. Banks need to adapt to this changing society. By providing better services the industry can solidify its place in the future.
Following are the threats of the banking industry.
Lack of Proper Cyber Security
The modern banking industry is entirely dependent on the cyber-world. Everything is stored digitally whether it be data storage, monetary transactions or personal information. This makes the banking industry a prime target for hackers who seek to gain financially by exploiting weaknesses in the digital infrastructure of the banks. Unless the banks take proper cybersecurity measures to protect their data, they can face a serious threat from cyberspace.
Banks worldwide face stiff competition. Not only from other banks but also institutions such as Non-Banking Financial Corporations which offer a number of financial products that all banks do not. This has led to a shifting of the customer base from the banks to NBFCs which find greater acceptance among the new breed of professionals.
Global Economic Instability
Currently, the world is going through tough economic times. Trade wars, protectionist policies, and global downturns have all had an effect on the international banking system. Unless the world economic conditions improve, banks can be facing a dire future.
Conclusion of Swot Analysis of the Banking Industry
The banking industry is a reliable one. It has certainly stood tall against the vagaries of time. When others have disappeared, banks have adapted themselves to keep up. They have also contributed to the economic development of the world in general.
But they have to contend with their own weaknesses such as NPAs and lack of a sufficient rural presence. The good news is that they can work towards converting these weaknesses into opportunities by ensuring better service and expanding into untapped areas.
This will help them to deal better with the global threats of recessions and intense competition. Another facet that banks must look after is ensuring that their digital infrastructure is up to date and working properly. By doing so the banking industry can guarantee that it continues on its march of prosperity.