The banking industry has an age-old stigma of being old and boring. In more recent times, a global trend of deregulation and emerging technological developments have helped banking to shed its stodgy image. Analyzing the banking industry is a very difficult undertaking. Bank stocks are among some of the hardest stocks to analyze. A bank’s financials are typically over 100 pages. They hold billions of dollars in assets and often have many subsidiaries.
Many people view banks as cornerstones of our economy. Banks are viewed this way for many reasons. Banks help facilitate transactions and provide financial information for businesses and individuals. More importantly, banks transfer risk and provide liquidity for clients. The retail banking industry is focused primarily on individual customers and smaller businesses.
The most noticeable distinction between the banking industry and other industries is the level of government involvement. The government plays a huge role in the bank’s profitability. It also sets limits on the amounts of deposits banks must keep on hold as well as the amounts of money that banks can lend.
One of the most common methods of analyzing an industry is by the use of Porter’s Five-Forces Analysis. The five-forces framework provides a way to assess the current status of an industry as well as the likely evolution of that industry. The five forces include the threat of new entrants, power of suppliers, power of buyers, availability of substitutes and competitive rivalry. The retail banking industry can be analyzed using Porter’s Five-Forces Analysis. In this industry, this analysis helps determine the competitive intensity of the industry as well as the attractiveness of the market.
The first of the five forces is t ...