HANDELSBANKEN Harvard Case Solution & Analysis

HANDELSBANKEN Case Study Solution

Q1. What makes Handelsbanken different from other large banks and what tradeoffs does its distinctiveness entail?

The bank is different in a sense that the bank has different branches and all the branches are independent on one another and this rarely happens in banks as the decisions taken by the branch manager might not be as good as the top management. The banks are somehow accountable to the regional managers for some decisions but overall they take independent decisions and their decisions are appraised on the basis of cost to income ratio as any branch having low cost and higher income will be rewarded in shares.

The bank promotes competition in its branches in this way and the other branches compete to decrease their cost to income ratio as this will make them look good in comparison to other branches of the bank. The distinctiveness in the banks due to the decentralization will lead to branch managers acting accordingly on the decision and this will lead to quick decision making as previously when there was a centralized decision-making system, it used to take two months for the bank to lend money to the borrowers and this was not time effective. Whereas the managers would now be responsible for the strategic decisions of the bank such as opening new branches i.e. expansion of the bank in other countries and cities leading to more profit overall for the bank. The competition given to branches to lower their cost to income ratio will lead to the business profits being increased and hence the bank would find it easier to fund the expansion it wants.

On the other hand, the greater autonomy will lead to the branch managers feeling more comfortable for decision making as they are well-versed of the local market and the needs and creditworthiness and riskiness of the customers who borrow from the bank.

HANDELSBANKEN Harvard Case Solution & Analysis

Q2.What risks and opportunities does a bank in general -- and Handelsbanken in particular -- face in entering the Baltic and UK markets? How, if at all, would you adapt Handelsbanken's Swedish model if entering Baltic markets?

The risk which can be faced by almost every bank is the credit risk which is the risk that the customer who borrows from the bank may default in extreme case as Handelsbanken might have customers whose loans would have been approved at first due to the good financial health but later the client may start experiencing problems he might not be able to pay the bank and this, in turn, will lead to a huge loss to the bank if the loan is of huge amount. The bank would lose a lot if the customer defaults and this type of risks are almost faced by every bank.

The other type of risk is the market risk which a bank can face as market risk is the risk of fluctuations in the interest rates, exchange rates, equity risk and commodity risk. The risk of interest rate is that there might be increase in the interest rates in the market and the bank might suffer as those customers who have fixed interest loans will lead to the bank losing them.In the case of an increase in the interest rates the bank would receive the fixed interest agreed at the time of the covenant being made. In addition to this, Handelsbanken would also face the exchange rate risk if the bank is operating in the UK and it might receive fewer cash amounts if converted into Sweden currency as this will make the bank vulnerable to the prevailing exchange rate risk. The risk of increase in the commodity prices is not applicable to the banks as the commodity prices increase is relevant only in those businesses where manufacturing takes place. On the other hand, the equity risk is the risk of an adverse movement in the stock price of the bank if the bank is listed.(Aboli, 2015)

The major opportunities for the bank are that it can expand its branches in the UK as the UK has deregulated its markets which is a great opportunity for the bank to expand in the country.The country is allowing access to the market and there are no barriers to entry as due to the strict regulation in the market previously the bank would have found it difficult to enter the UK market.

The expansion of the Handelsbanken would lead to more branches which would lead to an increased ability of the bank to compete in the market with other banks and this would also increase the customer base of the bank which will lead to an increase in the overall profitability of the bank and more recognition among the customers........................

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