Writing a comparative research study on the topic of finance and banking is a rather challenging thing. The conduct of such research involves several skills connected not only with the sphere of economy and finance but also with geographical, geopolitical, and even historical factors, as all of them, are interconnected and make their contributions to the development of a certain financial establishment. That is why the current research paper will be dedicated to the comparative analysis of two financial institutions, namely banks, including the history of the above-mentioned organizations, their structure, and the current state of things in them. The information will be taken from such primary sources as the financial reports of the organizations specified below, as well as from secondary sources specified in the reference list.
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Goals and Methods of the Research
The objects of the research under consideration are two banks situated in different regions of the world. One of them is called HSBC Holdings plc Group, being a UK-based bank which operates successfully throughout the world, and another one is the bank from Saudi Arabia titled SAMBA Financial Group. The current research paper aims to compare the two financial institutions and to analyze the data got from their annual financial reports and other secondary sources. In this work, the following points of the two companies’ activity will be touched upon as marketing penetration and marketing strategy, off-balance-sheet management, derivative product risk management, operating structure of these financial institutions, their board powers, and management structure. To reach the set goals such methods as a case study, comparative analysis and research charts will be used in the current research paper.
The largest banking corporation in the modern world HSBC was established in 1865 in Hong Kong to set the trade between the European countries and their colonies or lands belonging to them in Asia, as well as between Europe and China. Initially, the organization was called The Hong Kong and Shanghai Banking Corporation but with the time spent and with the extension of the company’s funds and powers it transformed into the modern name HSBC Holdings plc Group. Up to 1991 the headquarters of the Group was situated in the city of Hong Kong until in that year it was transferred to London.
Nowadays, HSBC cooperates with a lot of financial establishments all over the world and has more than 10, 000 of its subsidiaries in 83 countries of the world. The company operates in Europe, Asia, the Pacific region, Latin America, the USA, Middle East, and some African countries. The staff of HSBC amounts to over 300, 000 people in all its branches and subsidiaries, and according to several international magazines, HSBC Holding is acknowledged as the largest company in the sphere of banking and finance in the modern world.
Sphere of activity
The sphere of the Holding’s activity includes various aspects of banking. Among them, the most significant ones are Premier banking which is a unique option suggested to the clients of HSBC. It allows to be informed about the current events in world finance and to have access to the global network of banks. Other fields of activity of this company are Personal banking which involves advantages for physical persons while making deposits and conducting international financial operations; Business and Commercial banking which allows over 2, 5 million small and middle-size businesses all over the world to start and develop into a competitive market unit with the help of financial aids given by the HBSC; Global Banking and Markets is an analog of the personal one but is directed at dealing with such huge organizations as large business corporations, institutions and even national governments worldwide; Private banking is also an analog to the personal one but in this case, it is to with wealthy people who need their finance to be in order, so the HSBC provides these people with such options as wealth management, trustee service and other points all over the world.
SAMBA Financial Group Background
SAMBA Financial Group appeared as the mixture of Saudi National Bank with the branches of the Citibank in Jeddah and Riyadh in 1980. This step was predetermined by the restriction of laws in the Saudi Kingdom which demanded that all foreign banks in the Kingdom should have at least 60% of the equity of interests in the national property of Saudi Arabia. In 1999 SAMBA merged with the United Saudi Bank and the unity turned into the largest bank in the Middle East. It existed until the Saudi American Bank (usually abbreviated as SAMBA) changed its name to the Samba Financial Group to delete the signs of American presence and capital in the structure of Samba. Already in 2006, the name of the organization was changed to Saudi British Bank (SABB) that became a partner of HSBC, and started even more effective development in the countries of Asia. In 2007, Samba opened subsidiaries in Pakistan and Dubai thus making its influence in the region even more obvious.
The operating structure of the financial institution, board powers, management structure
HSBC has a rather complicated organizational structure but it is easy to understand if attention is paid to the functions of each of the members of the structure and the typical organization of companies of the kind in general. HSBC Holding possesses an organizational structure that consists of the Board of Directors, Adviser to the Board, Secretary, and employees. The Board of Directors, in its turn, consists of the executive director S. K. Green, the Group of Managing Directors, and the Group of General Managers. The directors working in the Board can exercise their power during the Board meetings which take place regularly and there were eight of them during the year 2007. The Board of Directors formulates the strategy of the company and makes up a strategic plan of the companies development for every five years. The Group Chairman and the Group Chief Executive are the leading positions in the Board of Directors. They are given to the most experienced directors from the Board using voting during the General Meeting of the Board. In 2007 all members of the Board took part in the Annual General Meeting.
Concerning the organizational structure of the Samba Group, we can state that it resembles a lot the structure of the HSBC with the Board of Directors, Managing Director and the Chief Executive Officer Eisa M. Al Eisa, Group of General Managers and ordinary employees. This fact can be explained by the partnership of the two companies considered in this research paper and by the accepted tradition to organize the banking companies similarly. This way of organizing the company allows having more control over the events taking place inside of it as well as to reach more success carrying out business, which is confirmed by the Directors of Samba group in their Annual Financial Report.
Bank risk management processes and internal controls
HSBC has a well-developed and efficient risk management system. This system includes capital adequacy, market liquidity, depositor and customer protection, fair lending practice, marketing and documentation standards, social obligations like anti-terrorism financing steps, and anti-money laundering measures. The Board of Directors formulates the most important risks for HSBC for a certain period and forms the Group Management Board headed by the Group Chief Risk Management Officer that deals with handling all possible risks, including credit risk, market risks, insurance, and liquidity risks. The Risk Management Meeting of the Group Management Board approves different decisions concerning the management of risks and adopts certain policies and measures for risks control. After the meeting of the Group Board, the Group Chief Risk Management Officer gives the information about its results to the Chief Financial Officer who then decides what policy should be kept by the company in a certain situation.
The Samba Group also has an efficient system of Risk Management and Control but its Annual Financial report states that this very system demands certain improvements to be made to turn it into a system working with no mistakes. This company is most of all concerned about the management of credit and market risks and its report presents considerable information as to which methods are used and what is their efficiency. One of the most important techniques is the so-called Market Risk Management (MRM) system which includes the following points:
- creating a framework of policies aimed at risk management;
- independent analysis and measurement of risks at a certain segment of the market;
- decisions on the type of risk management policy and their approval based on the definition of risks limits;
- conduct of the so-called “stress scenario” testing;
- qualitative assessment of the market risks.
Regulatory supervision and reporting
As for this very point of the comparative analysis, we can observe some differences in the two companies under consideration. HSBC displays a higher degree of regulatory supervision and reporting as the Holding is much larger, i. e. it comprises so many units of banking sphere and finance that it is much more difficult to control them but the company management is skilled enough to cope with the problem. In the 2007 Annual Financial Report, we can observe that the supervision is at a top level of the company’s organization. The report itself is carried out by qualified staff and presents numerous statistical data that make it easier to control and supervise the work of the HSBC.
Samba Financial Group is a smaller company but it has partnership ties with HSBC and this allows it to have a well-organized system of supervision and reporting. The difference in this organization is that the system in the Samba Group is based a lot on Islamic principles and has less to do with the traditional management structure. We can see from the Annual Report of this company that it is controlled by Saudi officials and this adds to the efficiency of the supervision and reporting systems as the 2007 Annual Financial Report of Samba presents many specific data that give a clear view of the situation in the company.
Market penetration/segmentation/strategy/product mix
This point is rather important as the two banking companies that are considered in the current research paper are operating worldwide and penetration to the international markets is of great significance for them. The following table shows the efficiency of the market penetration and strategy of HSBC Holdings plc in 2007 compared to the same figures of two preceding years.
|Factor||Amounts by IFRSs|
|Year||2007 US$m||2006 US$m||2005 US$m|
|Net interest income||37, 795||34, 486||31, 334|
|Other operating income||49, 806||35, 584||30, 370|
|Loan impairment charges and other |
credit risk provisions
|17, 242||10, 573||7, 801|
|Total operating expenses||39, 042||33, 553||29, 514|
|Profit before tax||24, 212||22, 086||20, 966|
|Profit attributable to shareholders of the |
|19, 133||15, 789||15, 081|
|Dividends||10, 241||8, 769||7, 750|
According to this table, the efficiency of the HSBC work is constantly growing in international markets as well as on domestic ones. All the factors of successful work are obvious, the profit of the company is increasing, as well as the profit of its shareholders, so this allows us to presume that HSBC is developing in the right direction, even despite the fact that the expenses of the company are also growing. Another table can be applied to the statistic growth of the Samba Group in 2007 if compared to 2006. The company improved its figures in all respects, having thus gained more influence and power in international banking.
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|Currency||Saudi Arabian Riyal||Saudi Arabian Riyal|
|Cash in hand||970, 087||760, 786|
|Statutory deposit||3, 002, 858||2, 875, 098|
|Current account||303, 580||326, 333|
|Money Market Placements||5, 980, 000||117, 000|
|Total||10, 256, 525||4, 139, 117|
To cover the main points of this issue it is important to stress that Asset Managements of both banking systems are considered to be ruling providers in the sphere of innovative investments. According to the annual report of HSBC, the number of investment funds rapidly increased in comparison with the previous years. They are aimed at meeting customers’ requirements and satisfying their needs as to investment. Comparing the figures of the reports between two systems it should be stressed that Samba Asset Management fulfilled the planned amount of work as well. The annual report says that the total assets of the previous year made less than in the present period. The progress reached by the Samba Financial Group can be examined in the following table.
|ASSETS||MAR, 31, 2008||DEC 31, 2007||MAR 31, 2007|
Total liabilities of the banking system made about 113,976,319 in the previous year and gained about 161, 616, 540 by the March of the current year. (Samba Financial Group Annual Financial Report, 2007) Analyzing the assets of HSBC considering the annual report of the previous year one can come to total assets of 41% to £622bn. (HSBC in the UK: 2007 Annual Results, 2007).
Market Risk Management
Market risk covers all possible changes in the market development because of the prices changes. This issue should be compulsory disclosed considering the annual reports of the banking systems under analysis. Market Risk Management is to control the development of the market considering the threat of the risk.
Samba Risk Management includes:
- Independent control over the system of possible market risk;
- Testing of market risk;
- Monitoring of market risk of the separate market segments;
- Functioning of the special policy framework of the market risk.
Speaking about the Market Risk Management of HSBC it is concentrated on the maximum return on risks and the system worked out investment frameworks of the credit risk for the insurance of the banking system. HSBC continues to develop its Risk Management and is now concentrated on the following projects:
- Issues of credit and market risk management caused by structured products;
- Guarantees of pricing being the main part of the life insurance agreements;
- Financial methods covering Fast Fourier Transforms;
- Control of the discrete trading effects using portfolio protection development.
Thus, market risk management of both banking systems performs the major function in the prevention of serious damages.
Considering the figures g the annual reports it is important to analyze the rate of investment and the total results of some spheres of bank activities for the previous year. According to HSBC datum of 2007, the bank focused on the rapid increase of the investment rate:
- Establishment of 14 new Banking Centers of the multicultural investment;
- Organization of commercial and corporate centers;
- Investment rate growth in business specialists (about 19 % in the previous year);
- Further Direct infrastructure investments.
In general, the activities of HSBC resulted in the decrease of the total debts of small businesses and growth of the income connected with the deposit increase (up 10%). The research showed that about 89% of its customers were completely satisfied with the banking services.
Samba Financial Group was also concentrated on the investment activities in the previous year and is continuing to develop this sphere in the current period. Consider the following sheet.
|Investment activities||2007 (Mar)||Beginning of 2008 (Mar)|
|Sale of non-trading Investments||9,897,094||21,956,486|
|Purchase of equipment||32,129||49,033|
|Sale of equipment||249||6,947|
|Non-trading investment purchase||10,534,285||35,436,939|
The annual report of Samba Financial Group provides the figures for some net investments.
|Net Investments||2007 (Dec)||2008 (Mar)|
|Fare Value by Income Statement||4,201,981||3,889,356|
|Amortized cost investments||24,108,904||39,314,160|
So, investment rate increases in both banking systems and are one of the basic grounds for the establishment of new business centers all around the world.
A comparative research study of two great banking systems HSBC and Samba Financial Group cleared up the vision and understanding of their operating processes. We managed to analyze the basic principles of work of two financial institutions and examine the results of their fruitful work for the previous year using the annual reports of each bank. The charts and figures provided help to be involved in the process of work and decide the main aspects of every financial institution. The comparative analysis highlighted not only the current state of things but the structure and plans of both banks. We managed to evaluate the level of market risks and methods of their overcoming; study the marketing strategy of financial institutions and understand the principles of their interconnection.
Mishkin, F. The Economics of Money, Banking and Financial Markets, 2002. Addison Wesley; 6th edition.
Samba Financial Group Annual Financial Report, 2007. BusinessWeek: Companies, Samba Financial Group. Web.
HSBC, The World’s Local Bank. HSBC in the UK: 2007 Annual Results, 2008. Web.