HNB has a history with a heritage of over 120 years from the day it first started in a small hamlet called Hatton in the hill country in Sri Lanka where the tea industry blossomed. The Hatton Bank (as it was known at that time) was started by two British Planters, mainly to cater to the flourishing tea industry and over a period of time it has evolved and changed hands to local owners and in 1970 it was incorporated as HNB after a number of acquisitions and mergers. The Bank evolved from a small local bank to one of the largest private sector commercial banks in the country over the years. During the last 30 years, the Bank has grown in stature in terms of not only of the key financial performance indicators, but also touching the lives of people of Sri Lanka economically.
Figure 1: Logo of HNB
The Bank has a wide network of branches with over 180 branches spread across the country covering all major cities and towns from the North to South and from the East to West. The Bank serves, beginning from an infant to a senior citizen and from Micro Entrepreneurs to mega corporate entities. The Bank holds nearly 15% of the market share in banking sector, which has a population of 20 million by serving all segments of the people by offering a variety of financial services from a simple Savings Account to sophisticated needs of high profile investors. The Bank was adjudged the “Best Retail Bank in Sri Lanka” for the year 2008/2009 by Asia Banker based on a variety of criteria of retail banking services it provides to the country.
The Banks’ vision is “to be the acknowledged leader and chosen partner in providing financial solutions through inspired people” and it is with this vision that has been able to create an impact on customers by being their Partner in Progress while the mission of the Bank is “combining the entrepreneur spirit of empowered people with a leading edge technology to constantly exceed shareholder expectations”. Over the years, the Bank has been able to serve customers and create a positive impact by creating value to customers through its products of financial services and delivery mechanisms while maintaining the highest levels of regulatory discipline and standards. Further, HNB was awarded the “Best Commercial Bank in Sri Lanka” in 2009 by Euro Money.
Organizations are set up in different ways to achieve success in the market and remain constant adhering to a flexible structure which suites there business organization. There are many types of business organizations that defines by ownership and profit or non-profit, within private sector and the public sector.
- Sole Proprietorships – The purpose of a sole proprietorship is to provide a service or a product to a customer by incurring a value. The business is owned by one person and the profit or loss is bared by the owner. By becoming a sole proprietor, the owner is not liable to any formalities and can make decisions independently. The benefits of being a sole trader is,
- Easy to commence
- Registration of legalities is not compulsory
- Ability to refrain from paying tax, auditing and maintaining accounts.
- Joint ventures – A joint venture is created when two or more established businesses agree to merge their resources to achieve a particular goal. Moreover, joint ventures are formed for a limited period of time in order to accomplish a specific business goal. Key features of a joint venture,
- Access to new markets and distribution channels.
- Sharing specialized and expertised resources containing Research & Development.
- Clubs and Societies – A club is an association of two or more people together with a common goal of providing service to the community.
- Government departments – These departments are created to provide relief to the public as a service. The departments are located widely across the country in order to provide relief to the low income earners in a country.
- Government cooperation’s – Corporations are revenue generating enterprises that are legally owned by the ruling government.
- Government Companies – The sole intension of government companies is to make investors to invest in the Government companies in order to increase the securities and bonds in the treasury.
1.2 Identification the different types of stakeholders and describe the extent to which the HNB meets the objectives of these stakeholders.
A stakeholder is an individual or group that has an interest on company operations. Stakeholders can be divided into two categories such as internal and external parties in a business. However, both parties can be affected by the actions taking place in a business.
Internal stakeholders are people who work within the business or people who directly influence the business. Moreover, stakeholders are benefited with the followings,
- Employees = Wages and salaries
- Owners = Profits
- Investors = Dividends
External stakeholders are people who are in outside and has no direct impact on the business operations as such but will be affected by on business operations. The stakeholders involved outside the business are as follows,
- Customer = Value and Satisfaction
- Suppliers = Continuity of purchasing their products
- Creditors = To be repaid on time as per agreed
- Community = employers of the local people
- Government = Tax payments, employ more people, conduct the business ethically and provide reports on the financial conditions of the business.
1.3 Responsibilities of the HNB Strategies
The responsibilities of HNB bank,
- Develop innovation on deposits for children, teenagers and adults.
- Increase children well-being by various programs and initiatives which give fun with a purpose.
- Provide Corporate Social Responsibly activities.
- Give customers useful information regarding deposits, Housing loans and other essential information.
- Improve their network and systems around the country.
- Recruit skilled employees and train their existing employees for better performance.
Strategies used by the HNB;
- Major priority on fluency in English when recruiting employees to the Bank.
- Get advices from the World Bank.
- Broadcast and provide sponsorships for children and celebrates world children’s day in a attractive way.
They have implemented many Corporate Social Responsibility (CSR) activities such as,
- Organizing Shramadana Campaigns.
- Organizing sermon programs.
An economic system is organized way in which a state or nation allocates and apportions goods and services in national community. Basic means of achieving economic goals that is inherent in the economic structure of a society. Major economic systems are capitalism, socialism and communism mainly on production, distribution and consumption. There are basically four types of economic systems.
- Free economy
- Mixed economy
- Command economy
- Market economy
The economic system that exists in Sri Lanka is a mixed economic system. We can see the following features in the current economic environment.
- Profit making organizations and the increase of capital would remain the central driving force behind the economic activity.
- The government would have considerable influence over the economy through fiscal and monetary policies designed to counter economic downturns and capitalism’s tendency toward fiscal crises and unemployment along with playing a role in social welfare interventions.
Effective Use of resources
- The extent to which the mix economies as Sri Lanka, for effective allocation of resources between the government and private enterprises varies from countries to countries.
As Sri Lanka, it allocates scare resources among all sectors regardless of government or private sector, through budget. As an example the 6% from money is allocated for the education in every year from the budget.
- Government interventions are usually in the form provision or prohibition, subsidies or tax and regulations. For example, public goods are priced low or zero to maximize consumption and increase social benefits. Also the government always tries to reduce the tax for public goods. The current tax rate is 15%.
Merit goods are encouraged by subsidies to increase consumption whereas the demerit goods are taxed heavily to reduce social costs. The government has subsidized heavily education of children to ensure the less fortunate are not left or from the main stream.
Fiscal policy is the use of government spending to influence the economy. Measures implemented by the government in relation to the collection of revenue and public expenditure are referred to as fiscal policies. These policies can be categorized as expansionary or contractionary while the rest can be identified as advantages and disadvantages of these policies.
Fiscal policy involves the government in changing tax rates and levels of government spending to influence and aggregate demand in the economy. Expansionary fiscal policy involves government attempt to aggregate demand.
Expansionary Fiscal policy
Lower taxes should increase disposable income of consumers influencing to higher levels of consumer spending. This should also increase aggregate demand and could lead to higher economic growth.
Monetary policy is the process by which the monetary authority of a country controls the money supply, often targeting an inflation rate or interest rate to ensure stability in the currency. The monetary policy supply is cash, credit, cheques and money market. The important of these is credit options which include loans, bonds, mortgages, and other agreements to repay.
Monetary policy means managing the money and interest rates accordingly without arousing a shake in the economy. We can identify the money supply process by the following equation.
According to the above equation M is the money supply and M B is the monetary base, and m, the money multiplier, is determined as,
These equations reveal that the government can manage the money supply that is by conducting monetary policy in 3 ways,
- By changing the monetary base through open market operations
- By changing the monetary base through interest rate corridor formed by the main policy rates of the bank.
- By changing the money multiplier by changing the required reserve ratio
Competition policy, on the other hand, generally refers to all laws, government policies and regulations aimed at establish competition and maintain the similar. It includes events intended to promote, advance and make sure competitive market conditions by the removal of control, as well as to restore competitive results of public and private restrictive practices.
HNB is one of leading private bank in Sri Lanka. Banking industry is very challenging and they are competing with each other to get competitive advantage. Competition policy promotes competition and makes markets better and improves the efficiency of various organizations. It ensures wider customer choice, technical innovation which promotes dynamic efficiency and effective interest rates competition between private banks. Competition policies are based on four policies such as antitrust and cartels, market liberalization, state aid control and merger control. Those policies restrict competition including price fixing and other abuse.
Completion policy breaks the monopolistic market and ensures easy entry on new competitors. On the other hand, regulations are enforced by government to forecast how a market works and the outcomes which results for both customers and others in the industry. Some regulations are standard customer service and environmental policies and so on. Regulatory committee monitor rates, ensures standard customer services, surrogates competitors and opening up markets.
3. Market structure in which the banking industry operates and explain how this market structure determines the pricing and output decisions of HNB.
In the market economy the partakers in various markets are either price makers or price takers. Price makers are who decide to set the price that exists in the market, while price takers are who remain silent in the market in which the price is being dominated by the price makers.
Markets are simply known as the place where buyers and sellers meet in order to exchange a specific good or service for agreed price between both. In economics markets are categorized according to the size of the business, the number of sellers of specific goods and services, their share of the market and the degree of competition. There are main four markets in economics which are broadly identified as four market models which are discussed below.
- Perfect competition
- Pure monopoly
- Monopolistic competition
- Perfect competition
Perfect competition is meant by economists as where the competition is high at its possible level. Accordingly, this is and industry configuration in which there are many firms producing homogenous (same) products. The following characteristics are said to display perfect competition,
- Large number of buyers and sellers.
- Homogeneous products are produced by all the firms in the market.
- Free entry to the market as well as exit.
- No advertising cost needed.
- Consumers indulge in rational decision making. Since the consumers are well aware of the changes in the market.
- No government intervention
- No long term economic profits
Therefore, Single firms’ activities cannot influence pricing on products and services. Pricing is also transparent, so that the consumers are also well aware of different type of costs between sellers.
- Pure monopoly
A pure monopoly exists when there are no competitors in the market and there’s no similar alternative in the market to compete with the product or service. Monopolies are considered by tough barriers to entry. In this economic module the firm is the only price maker and decider for the goods and services produced. This includes the following,
- High costs
- Copyright or patents
- Government regulations or barriers
- Granting of various contracts for nationalized industries.
The demand for monopolistic completion is elastic due to the existence of similar substitutes in the market. Due to that reason competition is influenced in the market and deems to be competitive in selling a product. Monopolistic competition is the base where competition occurs. In record most competitions take place when there are sufficient competitors with various products with different features.
Many small businesses practice under monopolistic competition, including businesses owned independently and high-street stores. The motive of all business is to target the customers and gain maximum profit. But in this scenario maximum profits are a real challenge due to the existence of the market competition. To gain profits in these particular market businesses should make unique offers to which the customers should possess interest towards the product.
Monopolistic competition refers to a market situation in which there are large numbers of firms which similar products with differentiated features. The following are some characteristics of market competition,
An oligopoly is where the market is being dominated by few companies, each of which has control over the market. Furthermore, oligopoly is defined well when the market is considered by its behavior than its market structure. The market is defined by a mechanism called “the concentration ratio” which means, if a large percentage of the sales are being recorded by 4 largest firms, then it’s called oligopoly. The following are characteristics of oligopoly,
- Few sellers
- Homogeneous or differentiated products
- Importance of Advertising and Selling costs
Banking has become an oligopoly instead of a competitive business. Banking is not really a competitive; it’s more like an oligopoly. Oligopoly is in which an industry is controlled by a small number of firms. An oligopoly is a lot like a monopoly where one firm controls the whole show. An oligopoly industry produces either a homogeneous product or heterogeneous products. Therefore we can see the products are same in the banking industry like savings accounts, fixed deposits and etc.
But the banking industry operates in a different universe. Charges for products and services and the cost of those products and services often have very little relation to each other. In Sri Lanka there are several banks in industry like Peoples’ Bank, BOC, Sampath, Commercial, and DFCC and so on. Therefore one bank is introducing something to the market so others are reacting to that. Also those are governed by the Central Bank of Sri Lanka on behalf of the government.
The banking industry is in an oligopoly structure. There are only few firms in the market. Thus the price in an oligopoly structure determines as below. The firms are competing in the market with not differential products with differential price. If one bank increases its interest rate for savings deposits, its rivals will not follow it and change their interest rates. On the other hand it happens same.
This is evaluated in accordance with the Porter’s five factors.
|Market Forces||Organizational response|
|Threats of new entrances||The banking industry deals with other peoples’ money and financial information new banks find it difficult to startup. Due to the nature of the industry. People are more willing to place their trust in big name, well known, major banks who they consider to be trustworthy. The banking industry has undergone a consolidation in which major banks seeks to serve all of a customer’s financial needs under their roof. Thus consolidation furthers the role of trust as a barrier to entry for new banks looking to compete with major banks. While it is nearly impossible for new banks to enter the industry.|
|Powers of suppliers||Capital is the primary resource on any bank and there are four major suppliers capital in the industry such as customer deposits, mortgage and loans, mortgage-backed securities and loans from other financial institutions. By utilizing these four major suppliers, the bank can be sure that they have the necessary resources required to service their customers’ borrowing needs while maintaining enough capital to meet withdrawal expectations. The power of the suppliers is largely based on the market, their power is often considered to fluctuate between medium to high.|
|Powers of buyers||If a person has one bank that services their banking needs, mortgage, savings, checking etc. It can be a huge hassle for that person to switch to another. To try and convenience customers to switch to their bank they will often times lower the price of switching through most people still prefer to stick with their current bank. The internet has greatly increased the power of customer in the banking industry. Therefore banks are always tried to retain their existing customers.|
|Availability of substitutes.||Some of the banking industry’s largest treats f substitutions are not from rival banks but from non-financial competitors. The industry does not suffer any real threat of substitution as far as deposits or withdrawals; however insurances, mutual funds and fixed income securities are some of the many banking services that are also offered by non-banking companies. Often times these non-banking companies offer a lower interest rates on payments then the consumer would otherwise get from a traditional bank loan. Therefore banks consider their substitutes and make updates with the technology.|
|Competitive Rivalry||The banking industry is highly competitive. Because of this banks must attempt to sure customers away from competitor banks. They do this offering lower financing, higher rates, investment services and greater conveniences than their rivals. The banking competition is often a race to determine which bank can offer both the best and fastest services. But has caused banks to experience a lower return on assets. Major banks tend to prefer to acquire or merge with other banks than to spend money marketing and advertising as a respond.|
Business environment is divided in to Business and Environment. So Business means human activities like purchase, sales of products and services, production, distribution and so on. Also Environment means factors of surroundings. Business environment is the set of political, economic, social, Technological, environmental and legal factors that is uncontrollable and affects the functions of the organization. Business environment includes two components such as internal environment and external environment.
Internal factors External factors
- Customers – Socio- Cultural factors
- Suppliers – Economic factors
- Potential investors – Political factors
- Competitors – Legal factors
– Technological factors
HNB is operating more than 25 branches in Sri Lanka. It is operating only in Sri Lanka. Their operation largely depends on the business and cultural environment of the divisions they operate. Economic environment is not same for areas around the country. The capital income of Colombo and Jaffna are not same. Also the living expenditure is not same in those Districts.
Political environment includes the political system, the government policies and attitude towards the business community and unionism. All these aspects have a bearing on the strategies adopted by the bank. The stability of the government also influences business and related activities to a great extent. Legal environment refers to set of laws, regulations which influence the bank and its operations.
But Economic policies like fiscal policy, monetary policy and other regulatory mechanisms are same in the country.
Social environment of business includes social factors like life expectancy rate, literacy, poverty, beliefs, values, traditions and customs. The culture of Jaffna is Hindu.
In environmental factors, we can see that they are more concern about environment and impact which can be affected through their operations. For an example, when we get an email from them, they say not to print the document since it will help to protect the environment. So this will be a good sign which companies are practicing in a contemporary society in order to protect the environment by minimizing harm.
Technological environment includes the methods, techniques and approaches adopted for the activities of the bank. The bank always updates their systems with the new technology. Hence we can evaluate the business environment around the bank.
Legal factors are of great importance since these are the first barrier that advertising needs to cross in terms to reach its target audience. Legal clearance in other words ensures that the advert is based on principles of ethical conduct and highlights rules and regulations regarding ethical decision making.
Organizations are categorized in two groups as public sector and private sector. Private sector consists of sole traders, partnerships and limited companies, while public sector involves in government departments, corporations and companies. According to the categories the motives of each organization defer as profitable and non-profitable organizations. The motive of private sectors is to gain profit and remain sustained in the business market. Whereas, public sectors sole motive is to provide services and reliefs to the public (citizens in the country).
HNB is a banking service provider who provides services to their customers in enormous ways. HNB also can be specified in to two categories in which the stakeholders contribute their potentials and resources to the growth and sustain of the business. HNB believes in their vision and mission statement at all times in which they strive to reach the common goals of the company at all times.
An economy is a mechanism that a country practices to allocate resources that are available in the country, and the price makers for specific goods in different market modules. The economy is responsible for the goods produced and the way that the goods are being produced.
Government regulations and conditions are being imposed to the organizations in order to restrict businesses from malpractices.
A countries income is based on the taxation that a government imposes on all types of operations that takes place in the market. Government uses the economic policies such as fiscal and monetary policy to maintain stability in the economy and maintains mechanisms to safeguard the country falling in to inflation.
HNB is a service provider for many countries in the world which they operate in the oligopoly market competing with fewer major companies in Sri Lanka .HNB also faces the pros and cons that are discussed in Task 04 due to international trade.
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