European Retail Banking



European Retail Banking

Introduction

The paper discusses the case study of the Santader Group keeping in view the foreign exchange risks management strategies, the political risks, and the recommendation for bank's performance in the challenging global bank environment.

Country/political Risk

Growth in the retail savings & investments market in Europe could provide room for business growth. Consumer finance markets are characterized by severe competition in Europe and the US. Foreign banks have a strong presence in Spain and several foreign banks have acquired small and medium-sized Spanish banks. The group's competitors include Societe Generale, UniCredito, Italiano Group, Citi Group, HSBC, Bank of America, JP Morgan Chase & Co. Moreover, the emergence and growth of comparison sites where buyers can readily compare the rates offered by different originators reduces the group's ability to retain customers. Intense competition may put more pressure on the group's revenues and could result in a loss of market share. Spain's economic recovery seems weak (European Central Bank, 2011). During 2009 and 2010, the country's GDP contracted by 4.2% and 0.5% respectively. At the start of 2011, Spain's economy was projected to grow by 0.7%.

However, at the end of third quarter of 2011, Spain's GDP is projected to grow at just 0.3% in 2011. Economic growth in 2012 seems even weaker at 0.2%. Portugal's economic prospects are looking even dim. Though Portugal managed to register 1.29% growth in its GDP in 2010 when compared to 2.6% contraction in 2009, GDP is expected to contract in 2011 and 2012 by 1.9% and 3.1%. Elsewhere in other parts of Europe, economic prospects are expected to remain weak in 2011 and 2012 (European Central Bank, 2011).Weak economic prospects in Spain and other European countries could affect business volume. In the wake of the current financial crisis, regulators across the world have become more stringent for strengthening global capital and liquidity regulations with the goal of promoting a more resilient international banking sector.

Strategies in Foreign Exchange Risk Management

Independent Audits

The independent audits are significant aspects in controlling and managing the bank's foreign risk management program. The bank should use them to ensure the integrity and compliance of the foreign procedures and exchange (Cetorelli, 2009). The independent audits should be reasonable over time and they should test the bank's foreign risks management activities in order to ensure that the foreign exchange management procedures and policies are being adhered to. The audit should make sure that the effective management controls are implemented over the foreign exchange positions. Whereas, it is also important to verify that the accuracy of the management information about the foreign exchange risk is intact.

Control of Foreign Exchange Activities

The foreign exchange activities vary over among the institutions that depend on the extent and nature of the foreign exchange activities, the significant element of the exchange control program is to well define the procedures governing the control to make sure that there should be an effective segregation of the duties between the foreign exchange initiators and the operational functions (Caballero, ...