Tutorial 3 – (BBB Bank)

BBB is an international bank with retail banking operations in many countries. BBB’s retail banking is
geared primarily towards individual customers and is provided through branches as well as the
Internet. BBB offers a wide variety of retail banking products including savings and cheque accounts,
debit and credit cards, insurances, mortgages and personal loans. BBB has a strong international
brand image and a long record of success, particularly in Western countries.

BBB has offered retail banking services in country R since 2008. BBB decided to invest in R because
R then had a rapidly growing economy and in 2008 BBB considered there were good retail banking
opportunities as only 50% of the population of R had a bank account at this time. BBB initially
invested $200 million entering R, establishing a branch network in 2008. It also purchased a local
bank in R for $150 million just after the start of the global financial crisis in 2007.

R liberalised its economy in 1993 which means it now allows the free flow of capital into and out of the
country. The banking sector contains some state-owned institutions that compete strongly for retail
banking business. The largest state-owned bank, SB, has half of R’s retail banking business and has
a strong position of dominance. This has been strengthened recently due to a reorganisation in its
senior management and the launch of some successful new retail banking products. These new
products have proved to be very popular with customers and are very profitable.

One banking analyst has recently commented that "R’s government has chosen to energise the
banking sector through SB. It is less keen on foreign competition. The potential rewards for retail
banking in R are great. There is plenty of growth left in this market and the margins are excellent.
However, R’s population is very conservative, they don’t like change." Within R, mortgage and
consumer lending has grown at 20% per year compound from 2007 to the present day. BBB’s
economic intelligence unit has forecast that this growth will continue for the foreseeable future
because this reflects the policy of R's government.

There are a number of foreign banks which have been established in R for over 15 years and these
are all profitable. They have 35% of R's retail banking market. Since the beginning of 2011, BBB has
identified two foreign banks which entered R at the same time as BBB, but which have withdrawn
from R. One of the foreign banks has stated its reason for withdrawal as being 'Our operations in R
have reduced group profitability.'

Required

(a) Evaluate, using Porter's Five Forces model, BBB's future potential for a profitable retail banking
business within country R. (14 marks)

(b) Advise BBB, using your analysis from part (a) of your answer, whether it should continue its retail
banking business in country R. (5 marks)
 (c) Advise BBB how it could use Porter's Diamond in its preliminary analysis when considering future
investment in new foreign countries. (6 marks)
(Total for Question Two = 25 marks)
(November 2011, Q2)