Banking Assignment
In today’s developing and competitive environment, banking sector is rapidly increasing with a motive to grab the large market share by offering the customers with the effective and innovative products & services that help in satisfying the demands and wants (Hasli and Ibrahim, 2016).
In context to this, an international Barclay’s subsidiary selected is Barclay Bank Plc (Singapore) and that subsidiary bank will be analyzed on the basis of liquidity position or on the basis of performance over the last five years. In this report, competitive environment in the banking sector will be analyzed where Barclay’s subsidiary is located.
In addition to this, potential effects will also be discussed in regards to the credit risk and liquidity position of the subsidiary. Further, this study will also highlight on identifying the three major factors that contributes or influences the financial performance of Barclays subsidiary is located.
This study helps in highlights the financial performance and credit risk performance of the banking sector on the economy which bank subsidiary is located.
In other words, this study provides support in understanding and analyzing the credit risk performance efficiently in context to Barclays Bank Plc, Singapore (international subsidiary). Barclays Plc (London, UK) is known as a mother company which offers its customers globally with its products and services.
Moreover, Barclays Plc is well known and established company which is situated in United Kingdom and its subsidiaries are located around the world at different location (Barclays Plc, 2018).
In this report, once international subsidiary of Barclays is selected then the credit risk performance of the company is analyzed in an efficient and effective manner.
Analyzing the liquidity risk performance
Liquidity risk is a risk that company cannot able to meet the financial demand in a short term period. In similar manner, credit risk is related to debt or losses which borrower can fail to pay back its debt amount to the company.
The Barclays international subsidiary in Singapore is selected for analyzing the liquidity risk performance over last five years. The Barclays Bank Plc is one of the largest subsidiary company that offers its customers unique products and services in the banking sector.
To reduce the credit and liquidity risk, it is analyzed that it is very important to analyze and measure the customer ability and company’s ability or potential to pay off the debt or liabilities which is sanctioned in form of loan (Cornett et al., 2011).
To measure and monitor the liquidity risk, the last five years performance is analyzed from which it is identified that liquidity position of the company is complicated because company is not able to manage the sufficient financial resources to meet the payment obligations that are due.
This could create negative impact on potential of the company as they are not meeting the regulatory liquidity standards which ultimately affecting the day to day banking activities. But at the same time, Barclays manages to meet the limits by managing on and off the balance sheet and also this limit provides support to control the overall extent of liquidity risk which are managed by exposure to cash outflows.
In respect to this, loss loan provision on total asset or non-performing loans is factors that are used to measure and analyse the performance of the company. While analyzing the liquidity risk performance of Barclays, Singapore is quite facing difficulty to manage the liquidity and funding risk effectively as it helps in company is able to manage all the risk efficiently.
Compare the overall liquidity risk performance of Barclays parent company
In this, liquidity risk performance of the subsidiary of Barclays Bank Plc is compared with the parent company by analyzing the credit risk as well as financial data of the company as this will help in measuring the performance of the company.
From the financial data of the company, the following data is considered i.e., loss loan provision for measuring the company’s performance. In the given financial data, it can be seen that in year 2011, non-performing asset of the Barclays Bank Plc Company is approximately 1.1% and of the year 2016,
it is approx. 1.2%. In the year 2011, non-performing asset of the Barclays Plc Company (UK) was in the year 2011 is 3.2% approx. and in year 2016 is 1.6%. Overall, this comparison help in identifying the liquidity risk performance of the Barclays Bank Plc Company and Barclays Plc Company.
From the above comparison, it can be summarized that parent company and its international subsidiary company is enjoying their liquidity risk situation because company’s liquidity performance is less affected. But, according to analysis, parent company overall liquidity risk performance is less effective in comparison to its international Singapore subsidiary.
Analyzing the competitive environment in banking sector of Singapore
After comparing the liquidity risk performance of both international subsidiary company and parent company i.e., Barclays Bank Plc then competitive environment for banking sector in Singapore is analyzed.
In this, the competitive environment of Singapore is studied on different aspects such as by analyzing the GDP growth rate interest rate and macroeconomic trend related to employment rate (Kueh et al., 2014). For analyzing the external competitive environment of Singapore country, the economic GDP growth rate is examined by evaluating the GDP of the economy, Singapore.
The below stated graph clearly demonstrates that Singapore economic GDP growth rate has frequently grown in few months because now every economy is more concern about satisfying the customers wants and needs by developing the products & services.
(Source: Trading Economics, 2018)
While analyzing the Singapore economic growth, it is identified that in the year 2017, the economy performance has fallen down to -1.5% which states a bad situation i.e., people consumption level and income spending has fallen down.
But at the same time, in year 2018, it is also observed that GDP growth rate of economy is increasing and decreasing with the change in the demand of people. This change was seen in GDP growth rate because consumption level and income is increasing with the increase in the national income and output.
(Source: Trading Economics, 2018)
On the other hand, it is analyzed that unemployment rate has increased by 2.2 % in the year 2018 which states that GDP growth rate has increased because of increase in public consumption level as well as because of increase in national income too. However, this increase in growth rate of the economy doesn’t create any negative impact or influence over the unemployment level in the economy.
Potential effects of credit risk and liquidity position on the international subsidiary, i.e., on Barclays Bank PLC
From the above stated data, the potential effect of credit risk and liquidity position of international subsidiary can be evaluated efficiently. The potential effects are studied in context of the subsidiary i.e., Barclays Plc in Singapore where liquidity position of the company is unstable in condition because the GDP growth rate is falling down frequently in year 2018.
In similar manner, unemployment rate is also creating huge impact on the economy stability and development.
The potential effects of liquidity and credit risk performance of the company is measured and observed through profitability, credibility and liquidity position and condition of the company (Wong, 2012).
In context to it, macroeconomic trend also plays a significant role for the Barclays Company as this helps in maintaining and reducing its liquidity and credit risk for which market trend are focused in-depth by following the other companies trend.
In the banking sector, the macroeconomic trend creates huge influence on the functioning of bank and in addition, credit risk situation of the bank is getting decrease because of that profitability situation of the company also get affected.
In respect to this, Barclays Bank Plc. faces the limitation in credit risk and this happens because of changing market trend which ultimately reduces or improves the interest rates and that encourages the creditors to take loan by analyzing the liquidity position of the debtor’s company (Loon and Zhong, 2014).
Thus, the effect of credit risk on the company’s performance will result into limited liquidity outflow to some extent only.
Factors contributing to Barclays financial performance in the country
The three factors that creates high influence over the financial performance of the company are financial leverages, Creditors right and environmental factor. These all factor have positive or negative influence on the performance of their subsidiary company and parent company goodwill and reputation.
While studying, it is identified that creditor right is a factor which is enjoyed by the creditors when bank faces an unstable or bankruptcy situation.
For Barclays Bank Plc, creditor rights are very different in comparison to parent company of Barclays in UK, London. This creditor rights factor is very complex than any shareholder rights i.e., protecting a creditor’s rights somewhere affects or reduces the shareholders or customer rights.
In Singapore country, there are only limited creditor’s rights that are developed by considered different strategies in order to deal with fraud debtors efficiently. These fraud or cheater debtors create a negative impact on the creditor’s interest significantly.
In addition, the strength of Singapore country in context of creditors rights can be stated in which protection law and power is enjoyed by the creditor in order to make creditor feel secured during bankruptcy.
On the other hand, it is also studied that there are different laws which provides jurisdiction at the time of liquidity and bankruptcy situation and when strength of creditors rights is measured the existing protection law are also measured or examined.
The strength of creditors somewhere provides benefits and help to creditors in performing the business practices which are developed for the creditor rights. For instance, there is a situation when the creditor loan amount is found as default then at that point of time creditors has a right to pose directly on the collateral security (Falato and Liang, 2016).
After analyzing and studying the creditor right, it can be easily stated that there is a high need to improve or develop the creditor rights because from many decades, the Singapore creditor rights are same which means that judicial efficiency will also get partial or become less effective for the economy as well as for company too.
Financial leverage is other factor that creates a high influence over the financial performance of the company. This factor helps in analyzing the financial stability and improving a financial condition to a next level. This factor encourages the company to highlight on current and future performance of Barclays Plc as they make effort to deliver the shareholders with a desired target.
The financial leverage of the company is high and getting increased with the time and this means that when debt finance of company get increase then financial leverage also gets higher. In concern to it, it can be stated easily that financial leverage of the Barclays is quite different in compassion to last years.’
Moreover, it is also studied that financial leverage has created impact on return on equity and this may affect the overall sustainability of Barclays Company. While studying the Barclays financial leverage, it is found that company is focusing towards minimising their financial leverage so that productivity get boost up in respect of earning per share.
But while analyzing the financial leverage of Barclays, it can be stated that company is largely dependent on the external debt and also company issues large amount of money through debt financing. This factor creates a negative impact on the business practices in terms of earning per share.
The environmental factor creates a negative impact on the business practices and that can be mitigated by adopting an effective strategy in order to improve the financial performance of the company.
The environmental factor of Singapore is effective and creates huge positive influence over the company’s performance because the ministry of environment in Singapore constantly focuses on maintaining the air quality by mitigating the pollution or issues.
But at the same time, Frederick (2015) also stated that there are major environmental factors that are still creating a huge influence over the economy condition and affecting business practices.
In other words, Epstein and Buhovac (2014) stated clearly that environmental factor influences directly or indirectly on the international business transaction at Barclays bank, climate change. Environmental security and protection is most significant elements which is considered by the different businesses such as Barclays Bank Plc, HSBC, etc.
The potential impact of environmental factor affects the operational activities and products which they offer by developing a new market. However, it can be easily stated that Singapore country is a remarkable country because this provides a huge opportunities to individuals and companies to grab efficiently and effectively.
Analyzing the factors that influence the financial performance of the international subsidiary
In concern to above stated factors, it can be stated clearly that these factors also creates influence over the financial performance of Barclays Bank Plc, Singapore. In concern to it, the influence of creditor rights is analyzed in order to identify the factor that can help in improving the liquidity or credit risk performance of the company.
From the identified data, it can be mentioned that in Singapore country, the creditors are efficiently using the protection law which are provided to them for their own benefits (Barclays Plc., 2018). In similar manner, the creditor rights of Singapore help he subsidiary company i.e., Barclays Bank Plc in improving its liquidity position to a large extent.
On the other hand, it can also be stated efficiently that there are various influencing factor which provides the support to the company in meeting the environmental issues in an efficient manner.
Environmental factor of Singapore found to be very attractive for the company to increase or develop their business and this somewhere also influences the financial performance of the company. In addition, financial leverages are performing less effectively because the debt is increasing and that leads to affect the return on equity.
Therefore, it can be elaborated that the company Barclays Bank Plc is leading player in the Singapore competitive market in terms of its performance and achievement that is achieved by offering customers with required and innovative products and services.
From the above study, it can be concluded easily that in Singapore, the law and legislation that are followed in the economy also governs the matters related to the insolvency of the company by targeting the creditor’s interest with the help of protection act.
At the same time, I also found that liquidity risk is faced by the creditors in the economy because company situation or condition is not that effective as it is measured by identifying the creditor’s right in the country Singapore.
In this report, macroeconomic trend also help in understanding the competitive environment of Singapore country which is observed by GDP growth rate and employment rate and interest rate. For analyzing the financial performance, financial leverage, environmental factor and creditor rights are studied in depth.
After evaluating and analyzing the different aspect, it can be summarized that Barclays Bank Plc (international subsidiary) and its parent company is having similar issues related to limitation in liquidity risk that affects their performance to some extent.
Barclays Plc. (2018) About us [Online] Available at: https://www.barclays.in/ (Accessed: 17th February, 2018).
Barclays Plc. (2018) Barclays PLC: Results Announcement [Online] Available at: https://www.home.barclays/content/dam/barclayspublic/docs/InvestorRelations/ResultAnnouncements/2016FYResults/20170223_Barclays_%20FY16_Results_Announcement.pdf (Accessed: 17th February, 2018).
Cornett, M.M., McNutt, J.J., Strahan, P.E. and Tehranian, H., (2011) Liquidity risk management and credit supply in the financial crisis. Journal of Financial Economics, 101(2), pp.297-312.
Epstein, M.J. and Buhovac, A.R., (2014) Making sustainability work: Best practices in managing and measuring corporate social, environmental, and economic impacts. USA: Berrett-Koehler Publishers.
Falato, A. and Liang, N. (2016) Do creditor rights increase employment risk? Evidence from loan covenants. The Journal of Finance, 71(6), pp. 2545-2590.
Frederick, N.K., (2015) Factors Affecting Performance of Commercial Banks in Uganda-A Case for Domestic Commercial Banks. International Review of Business Research Papers, 11(1), pp.95-113.
Hasli, A., Ho, C. S. and Ibrahim, N. A. (2016) An Examination of FDI in China, Singapore, and Malaysia. In Proceedings of the 1st AAGBS International Conference on Business Management 2014 (AiCoBM 2014) (pp. 489-499). USA: Springer Singapore.
Kueh, J. S. H., Puah, C. H. and Liew, V. K. S. (2014) Macroeconomic Determinants of Direct Investment Abroad of Singapore. Engineering Economics, 25(1), pp. 72-81.
Trading Economics (2018) Singapore GDP Growth Rate [Online] Available at: http://www.tradingeconomics.com/singapore/gdp-growth (Accessed: 17th February, 2018).
Trading Economics (2018) Singapore Unemployment Rate [Online] Available at: www.tradingeconomics.com/singapore/unemployment-rate (Accessed: 17th February, 2018).
Wong, S.P., (2012) The impact of culture on risk management disclosures: an exploratory study of international banks.
