Michael Porter's model for the Banking industry

Michael Porter's model for the Banking industry The market-oriented

economies and the global market place have enhanced the
competition for funds and market share thereby cutting down the
spreads of the banks, a part from declining spread, banks are also
witnessing a faster growth in their expenses when compared to their
revenues predominant in these expenses are the raising salary
expenses and loan-loss expenses. Banks are responding by
introducing new product lines and developing the existing services
into more sophisticated ones, in order to offset the rising expenses.
Let us examine the influence of the competitive forces using Michael
Porter's model for banking industry.

1. Rivalry among Existing Firms: Competition among banks has

increased drastically since the Commencement of liberalization. New
products, free pricing and market forces are collectively acting upon
the spread of the bank.

2. Potential Entrants: With the liberalization of the financial sector,

the influence of these forces on the banking industry is being felt to a
larger extent, with the DFI's diversifying into universal banking
activities and with the entry of new banks in the private sector, the
threat from the new entrants is gradually increasing.

3. Threat from Substitutes: In addition to the threat from the new

entrants, banks are also exposed to competition from the other
financial intermediaries offering substitute product. These include the
non-banking finance companies.etc the new entrants and the
substitute products are adding on to the already existing competition
from the present players.
4. Bargaining Power of Buyers: With the level of competition, both
from within and outside the industry. Increasing, the borrower is
naturally placed with greater
bargaining power with the opening of other financial market .the
money market and the overseas capital market, the avenues for raising
funds have widened for the borrower.

5. Bargaining Power of Suppliers: The introduction of new financial

products and greater access to other financial markets have enhanced
the investment opportunities of the depositors who from the major
sources of funds for the banking sector. Thus, it can be observed that
the competitive forces on the banking industry have been influencing
the prices, cost and size of the banks. The efficiency with which a
bank is able to manage all the competitive forces will be reflected in
its balance sheet and its profit and loss statement. In this regard, while
there has grown a renewed concern over profitability among the
banks, there isn't yet a similar concern over the newer and greater risk
that have arisen,