Chinese bank's potential to set up a new market in UK Essay

Chinese bank's potential to set up a new market in UK - Essay Example This paper will perform a feasibility study to evaluate a Chinese bank’s potential to set up a new market outside the country. Introduction Bank is one of the most common forms of financial services in an economy. The major function of a bank is to receive deposits from people and to lend money to potential customers. In every country, there is a central bank to manage the state’s currency rate, money supply, and interest rates. Economists unanimously propose that strength of the banking sector is a direct determinant of a country’s economic feasibility and sustainability. In order to attain greater level of operational efficiency and to sustain their operations, banks need to attract huge amounts of deposits. Although lending is a potential way to improve the profitability of banking operations, careless and excess lending would challenge the long term sustainability of banks. Thoughtless mortgage lending led to a series of bank failures in the United States ove r the last decade. Since then, banks all over the world have been giving increased focus to the repayability of loans granted. Many well established banks consider international operation as an effective strategy to spread risk elements and to achieve greater future certainty. New market in United Kingdom The feasibility study will be about setting a new market for the Chinese bank in United Kingdom. Evidently, UK is one of the most economically rich countries in the world and hence there is a greater scope for banking business in the UK market. In addition, UK stands well ahead of other developed countries in terms of industrial operations. Furthermore, the country is one of the strongest members in the EU. Hence, at the initial look it seems that UK is a potential market for the Chinese bank to promote its overseas operation. PESTLE analysis Political factors In the United Kingdom, the government exerts increased control over the banking industry blaming that thoughtless interfere nces of politicians caused a downturn in banking sector in the country recently. The government is likely to introduce stricter regulations in the near future so as to reduce the power of the banking institutions. Despite such regulations, increased political interferences still affect the flow of UK banking sector. According to PwC’s UK banking leader John Hitchins, growing political interferences coupled with stricter regulations have taken the banking sector’s future out of its control (Moore 2010). Economic factors While analyzing the economic landscape, it is clear that UK’s economic growth rate is lagging behind many other developed countries since the global financial crisis 2008-09. It must be particularly noted that the UK banks have significantly reduced the volume of lending over the last few years in response to a number of bank failures in the last decade. In 2011, four leading banks in UK including Royal Bank of Scotland, Lloyds Banking Group, HSBC , and Barclays restricted their property lending by a combined total of ?17.2 billion. Even though the Bank of England had announced an attractive plan to foster bank loans to medium sized businesses and home buyers, UK banks still hesitate to sanction property loans. Undoubtedly, this situation can be very helpful for the Chinese bank to set up its new market in UK. In addition, reports indicate that UK economy is