Understanding the Investment Fundamentals of the Banking Sector. A part of the series "Sector Analysis: A Framework for Investors"

Joseph Wong    Alan Lok, CFA, Eunice Chu, ACCA, Guruprasad Jambunathan
15 Apr 2019
Categories: Industry/Sector Analysis, General Market Analysis, Fundamental Analysis, Investment Management

Country or region: Asia Pacific (Overall)

Summary:
INTRODUCTION TO SECTOR ANALYSIS: A FRAMEWORK FOR INVESTORS

The key to a company’s success depends on how well it executes its business model. This calls for optimising the allocation of limited resources to generate sustainable cash flows, for investing in new products, technologies, and services in responding to the wider competitive landscape or societal changes and mega trends, as well as for devising appropriate responses in the face of an evolving macroeconomic, regulatory, and political environment.  

Different industries often require very different business models; and even within the same industry, the model that does add value to the business may vary somewhat from company to company.  

To help investors undertake proper due diligence on a company, we have generated a framework of analysis designed to tease out the following: (1) whether the pertinent factors favour the firm in question; and (2) whether management is effective in executing its business model or value-generating strategies, while responding appropriately to its external environment.

This framework is customised to specific sectors and incorporates interviews with professionals within those sectors. 
 
THE BANKING SECTOR

In earlier editions of the Sector Analysis series, we explored the Real Estate Investment Trust (REIT) business model and the Telecommunications sector. In this article, we examine banks and highlight the various factors and lines of enquiry that will help you make informed investment decisions.

SPHERES OF OPERATION

The role banks play in our lives is vital. Their activities underpin the efficient working of an economy – indeed, they are often among the most significant constituents of a country’s stock market. When we talk about banks, we are not just referring to the familiar branches we occasionally visit to deposit funds or withdraw cash. Banks is an umbrella term that describes an industry subdivided into several segments, including, but not restricted to Consumer Banking & Wealth Management (also known as retail banking), Wholesale (also known as institutional banking) and Treasury.

To read more, download the full sector analysis for the Banking Sector with accompanying question bank below.

This publication qualifies for 1.0 CE credits under the guidelines of the CFA Institute Continuing Education Program.
We encourage CFA Institute members to login to the CE tracking tool to self-document these credits.  
Date of original publication:

05/28/2018


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Reader Comments

Raihan Amin
Jun 25 2018
Excellent initiative on a little understood industry.


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