Bank of Beijing in the Chinese bank that was founded in 1996 and is headquartered in Beijing, China. It is one of the prominent banks in the Chinese financial sector offering a range of services. If offers service’s through various divisions including corporate and personal banking. Since its inception bank has made leaps of progress and won many honors including “Top 10 Listed Banks in Asia” (Bank of Beijing, 2020). It has performed outstandingly and topped domestic banks in terms of corporate value. Bank has operations in major cities of China; In addition, it operates in Hong Kong and the Netherlands. Bank has evolved and introduced innovative products and enhanced user experience. It is the first bank in Mainland to launch a digital bank with ING as the major stakeholder (China Banking News, 2019). Porter’s five forces model is used to assess business and financial risks it is exposed to.
Competitive Rivalry in the Market
In mainland China, there are many major banks operating in the sphere of corporate and financial banking. In 2019, 19 of the top 100 global banks are headquartered in China and they reported $ 25.8 trillion in assets (Bloomberg, 2020). The bank’s major competitors are Industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank. These banks also form the contingent of Chinese big four along with Bank of China. The bank of Beijing has reported CNY 106.8 billion in interest income in the Fiscal year 2018 (WSJ, 2020). Industrial and Commercial Bank of China has reported net interest income of RMB 606.9 billion in 2019. In comparison, the Agricultural Bank of China has reported net interest income of RMB 486.8 billion in 2019. China Construction Bank has reported net interest income of RMB 510.6 billion in 2019. There is high competitive rivalry in the Chinese banking sector.
Threat of Substitutes
The banking and financial services industry has existed for a very long time. It has evolved over time. Financial services form an important part of society they are going to exist in different ways (McWaters et al, 2015). In terms of consumer banking, the landscape is evolving dynamically due to the challenge posed by fintech startups. These startups put pressure on incumbents to either innovate or left behind. Banks are using different strategies to cope with this threat. Some banks are investing hefty amounts in research and development and others are teaming up with startups. The Chinese banks have the resources to spend on research and they can collaborate to create digital products leveraging their current customer base. The bank of Beijing’s collaboration with ING is a testament to that. There is potential for innovation and radical transformation, but in short-term there are no real substitutes exist.
The Threat of New Entrants
The threat of new entrants is high when business is less capital intensive and there is a relaxed regulatory environment. In general, there are standard best practices for banks to start operations. In China, these requirements are more stringent as the state has strict oversight on the business operating environment. The rules were in place to deter foreign investments and since they are relaxed the compliance requirement is strict. With financial institutes puling in high profits it attracts investors to invest in the Chinese banking sector. The Chinese state has strict requirements and it is difficult to compete for market share (BSA, 2017). They have a loyal customer base with established services delivery channels. This deters the confidence of the new entrance. It is a capital intensive business and significant initial capital is required. Considering all the above facts the threat remains moderate to low.
Bargaining Power of Buyers
The customers have higher bargaining power when they have better alternatives. The Chinese retail banking sector is saturated. There are many banks providing the same services and trying to target the same market segment. Banks compete on the cost to attract customers from other banks or new customers. In the financial services sector, the products are the same at the core and the banks are offering the same products with little or no differentiation (Vyas and Raitani, 2014). Then there is low switching cost, the consumer can switch from one bank to another with ease. These consumers in urban cities are aware of the fact and their perceived value. They leverage the fact and bargain for the best possible services with favorable terms. In retail banking, consumers hold high bargaining power.
Bargaining Power of Supplier
The major sources of supply to retail banks are deposits from customers, financial experts, and lender deposits. In the Chinese banking sector, consumers hold high bargaining power. The other source of supply is financial experts who work in operations and others who work in the treasury. There are many aspirants available to work in operations and there is also a moderate amount of individuals available to work in the treasury. Thus, they hold moderate bargaining power. The last source of supply is institutional lenders; they have a strict due-diligence process. They only sanction loans after conducting a thorough review. They hold higher bargaining power to negotiate their terms. Considering the above-mentioned factors, suppliers have moderate bargaining power.
References
Agricultural bank of China. 2020. Investor relations. Available at: http://www.abchina.com/en/investor-relations/performance-reports/annual-reports/202004/P020200428576090111267.pdf
Bank of Beijing. 2020. About us. Available at: http://www.bankofbeijing.com.cn/en2011/about/index.shtml
Bloomberg. 2020. Chinese Banks Remain World’s Largest in Latest Global Bank Rankings. Available at: https://www.bloomberg.com/press-releases/2020-04-17/chinese-banks-remain-world-s-largest-in-latest-global-bank-rankings
BSA. (2017).Review Of Barriers to Entry, Expansion, and Exit in Retail Banking. Available at:https://www.bsa.org.uk/BSA/files/97/97d78dbb-e8aa-4f8c-8b26-8c7ea7d95ce9.pdf
China Banking news. 2019. Bank of Bejing and ING’s New Digital Bank to be China’s First Foreign Controlled Lender. Available at: http://www.chinabankingnews.com/2019/03/25/bank-of-beijing-and-ings-new-digital-bank-to-be-chinas-foreign-controlled-lender/
China construction bank. 2020. Investor relations. Available at:http://www.ccb.com/en/newinvestor/upload/20200428_1588066796/20200428214237304314.pdf
Industrial & Commercial bank of China. 2020. Investor relations. Available at: http://v.icbc.com.cn/userfiles/Resources/ICBCLTD/download/2020/2019AnnualReport.pdf
McWaters, J., Bruno, G., Lee, A., & Blake, M. (2015). The Future of Financial Services-How disruptive innovations is reshaping the way financial services are structured, provisioned and consumed. In the World Economic Forum. Junio de (Vol. 2105).
Vyas, V. and Raitani, S. (2014). Drivers of customers’ switching behaviour in Indian banking industry. International Journal of Bank Marketing Vol. 32 No. 4, 2014 pp. 321-34.
Wall Street Journal. 2020. Bank of Beijing Co. Ltd. Available at: https://www.wsj.com/market-data/quotes/CN/XSHG/601169/financials/annual/income-statement