SWOT Matrix for Commercial Banks

In order to generate SWOT matrix for A Class commercial banks, we have used EFAS (External Factor
Analysis Summary) and IFAS (Internal Factor Analysis Summary) and formed strategies accordingly.
Strengths- S
S1. Strong regulations
S2. Considered trustworthy by
customers
S3. Skilled manpower capacity
S4. Numerous branches
providing easy access
S5. Decreasing level of NPL
S6. International transactions

Weakness-W
W1. Lack of rural access
W2. Lengthy procedures and
complex documents (Lack of
easy access)
W3. Lack of advanced/ updated
technology
W4. Lack of good corporate
governance
W5. Long service rate per
customer
W6. Concentrated collateral in
real estate

Opportunities- O
O1. Internet and mobile banking
O2. International expansion
O3. Wealth management service
O4. Increasing urbanization and
economic activities
SO Strategies
Develop favorable
strategy that would
facilitate bank for
operating in foreign
market
Provide license to carry
out portfolio
management services by
banks
WO Strategies
Increase customer
awareness for use of
online banking
Focus on urban areas and
emerging cities
Focus on development of
technological
infrastructure
Threats-T
T1. Unhealthy competition
T2. Increasing Cyber crimes
T3. Forceful Mergers
T4. Interference of NRB in
ST Strategies
Alternative policies to
face foreign competition
Develop capacity of
regulatory bodies for
WT Strategies
Continuous up-gradation
of rules and regulations
to match international
standards
internal decision
T5. Competition from expansion
of foreign banks in Nepal
T6. Fluctuating liquidity
T7. Deterioration in value of real
estate leading to increased
default rate
T8. Money Laundering
proper monitoring of
performance of banks
Take serious action on
the cyber crime issues by
forming a joint
collaboration with
Ministry of Information
and Communication.
Increase transparency in
pre merger phase
Make sure banks follow
prescribed regulations in
proper way
Reconsider the valuation
mechanism of collateral
and provide loan up to
only 50 % of the valued
collateral

Explanation of Strategies
SO Strategies
a) Develop favorable strategy that would facilitate bank for operating in foreign market: (S1, S6,
O2)
Since commercial banks are already involved in international transactions through remittance, foreign
exchanges, they have good networking in international arena. This along with financial liberalization
policy agreement in WTO 2004 for ease of FSS expansion in foreign land can be capitalized with the help
of governments favorable strategic regulations. Commercial banks can lobby with government to
formulate policies that allows easy international expansion and reduced bureaucratic hurdles after meeting
certain necessary requirements and capacity for expansion.

b) Provide license to carry out portfolio management services by banks: (S2, S3, O3)
Commercial banks having the skilled manpower and high trustworthiness among its customers can grab
the opportunities to open up a wealth management service facilities like mutual funds. This helps to foster
capital market as well by utilizing savings from small investors and injecting those funds to needy groups
in the economy like organization that in turn helps in developmental activities. For this government
should provide license to banks for operation of wealth management service institutions and also
encourage banks to provide trainings to their employees and develop expertise in managing portfolio
services.

ST Strategies
a) Alternative strategies to face foreign competition: (S1, S6, T3, T5)
Financial Service Sector (FSS) of Nepal is open for foreign participation after 2010 as per the
commitments of FSS liberalization. Such threat of international banks expansion in Nepal and high level
of competition to incompetent Nepalese banking can be reduced by encouraging joint venture, franchising
and licensing instead of wholly owned subsidiaries. This helps in controlling direct competition to some
extent. Also merger could be good way to increase size and capacity of Nepalese banks to compete with
foreign banks but it should not be forceful merger and pre merger stage homework should be done
adequately to avoid any new problems to emerge out as a consequence.
b) Develop capacity of regulatory bodies for proper monitoring of performance of banks: (S1, T1,
T7)
Banks are found to be not abiding by all the rules and regulations of NRB. No matter how strong
regulations central bank formulates, bank find some way to deceive it and try to enhance their
profitability via unfair competition. Such actions should be strictly monitored formulating more stringent
programs of onsite and offsite checking of banks activities. The large lending of commercial banks in
real estate sector as well as collateral in the form of real estate for advancing debt has also increased
vulnerability of banks. Thus, capacity of regulatory bodies should be enhanced for proper monitoring so
that banks do not engage in other risky activities except for providing banking services.
c) Take serious action on the cyber crime issues by forming a joint collaboration with Ministry of
Information and Communication: (S1, T2)
The major threat for development of mobile banking and e- banking services at greater level is the lack of
internet security/ cyber crime in the country. Though there are cyber laws against such crimes, there isnt
seen implementation. To worsen it further, even people are not aware about such crimes in Nepal. So, this
is a major challenge faced by banks for rendering advanced and fast service. To address this problem,
central bank in collaboration with Ministry of Information and Communication should stress on
awareness and implementation of cyber laws aggressively.
d) Increase transparency in pre merger phase: (S1, T3)
Merger should not be made forceful, instead there should be proper homework done between companies
before merging. NRB should strictly set rules for disclosing transparency in pre merger stage. Only those
organizations that match from all aspects should be considered for merger. Qualitative aspects should be
taken care along with quantitative aspects. Human resource management and corporate culture has to be
matched similarly proper Due Diligences Test has to be carried out before merging. Overall match should
create synergy effect in merging.
WO Strategies
a) Increase customer awareness for use of online banking: (W5, O1)
The long service time in commercial banks in Nepal has shown their inefficiency in rendering service to
customers and created huge pool of unsatisfied customers. In order to solve this problem, banks can
capitalize the opportunity of internet and mobile banking with the rapid adaptation of technological
development in the country. This will reduce the flow of customers in office and thus increase service rate
per customer.
b) Focus on urban areas and emerging cities: (W1, O4)
Lack of rural area reach is a major weakness of commercial banks and so they are not able to tap those
markets which are covered by microfinance companies. Instead of competing with microfinance
companies and facilitating rural area population in accessing commercial banks, it would be better for
them to concentrate on urban areas and emerging cities. This will also help to segregate the working area
of different class of financial institutions based on their work areas and reduce unhealthy competition
among them.
c) Focus on development of technological infrastructure: (W3, O1, O2)
The lack of technological development makes Nepalese banks inefficient in providing service and
competing with foreign standards. Under such situation, Nepalese banks cannot grab the opportunity of
international expansion and online banking. So, government should focus on attracting Foreign Direct
Investment (FDIs) especially in terms of technology transfer to banking sectors for the up gradation of
their technological infrastructure and be at par with international standards.
WT Strategies
a) Continuous up-gradation of rules and regulations to match international standards: (W2, T5)
The possibility of international banks operating in Nepal poses high level of competition for Nepalese
banks if present scenario of inefficiency in banking operations like lengthy procedure and complex
documentation continues. For addressing this issue, central bank should continuously up grade rules and
regulations to match international standards.
b) Make sure banks follow prescribed regulations in proper way: (W4, W6, T1, T8, S1)
Banks are facing problems, not primarily due to lack of regulation but due to lack of adherence to rules by
commercial banks. The emergence of problems like lack of corporate governance, unhealthy competition
and concentrated loan in real estate and increasing risk to money laundering are the results of non
compliance of prescribed rules by banks. So, NRB should be stricter in monitoring regulations followed
by banks on a regular basis.
c) Form a separate valuation unit and reconsider the maximum percentage of loan allowed against
valued properties : (W6, T7)
Major portion of collateral in commercial banks are real estates and their deteriorating values in the
market is posing high default risk. A problem attached here is that valuations done by engineers in
different banks are different and often presented the overvaluation of properties in real estate. For solving
this problem, NRB should develop separate unit for valuating such properties to maintain standardization
and its branches should be available in every district of the nation. Also, the amount equal to 50% of
result of such valuation should only be advanced as an approved loan.

SWOT Matrix for Development Banks
In order to generate SWOT matrix for B Class development banks, we have used EFAS (External Factor
Analysis Summary) and IFAS (Internal Factor Analysis Summary) and formed strategies accordingly.
Strengths- S
S1. Regional presence
S2. Sector specific banks
S3. Strong regulations
S4. Customized Service

Weakness-W
W1. Lack of skilled manpower
W2. Weak collateral
W3. Lack of infrastructures
W4. Weak Technology
W5. Lack of good corporate
governance
W6. L/C transactions limited to
hydro and infrastructure
Opportunities- O
O1. Growing M/A
O2. Increased urbanization
O3. Increased economic
activities
SO Strategies
Introduce mechanism of
matching economic
activities with the sector
served by development
bank
Invest in research
activities to assess the
need of local customers
or specific sectors
WO Strategies
Reconsider the L/C
transaction license
provided to development
bank
Develop a standard
compensation structure
throughout the banking
industry
Threats-T
T1. Unhealthy competition
T2. Political instability
T3. Union Problems
T4. Money laundering
ST Strategies
Increase the capacity of
regulatory body to
control unhealthy
competition
Continuous development
of anti money laundering
act to meet international
standards
WT Strategies
Facilitate technological
advancement through
technology transfer and
trainings

Explanation of Strategies
SO Strategies
a) Introduce mechanism of matching economic activities with the sector served by development
bank: (S2, O3)
Since development banks have sector specific classification, this classification can be used for matching
type of economic activities with sector specific banks. The primary area of operation for a sector specific
development bank could be for the development of economic activities in that particular sector and for
that concession and tax benefit could be provided. Whereas, operations beyond that sector for that
specific sectoral bank could be charged with extra tax rate. For example Clean Energy Development Bank
could be provided with tax concession while providing financial service for development of energy sector
in economy; however while operating beyond energy sector extra tax could be charged. This way, activity
of development banks could be distinguished from commercial banks.
b) Invest in research activities to assess the need of local customers or specific sectors: (S2, S3, O3)
Development banks could provide customized services and special packages to sector specific economic
activities. This is a way to differentiate the service rendered by B Class banks for which necessary
research activities have to be conducted to develop such useful packages.
ST Strategies
a) Increase the capacity of regulatory body to control unhealthy competition: (S3, T1)
Central bank, which is the regulatory body of banking sector in Nepal, should increase its capacity to
control unhealthy competition among banks. This can be done by establishing a separate unit for
inspection and monitoring of banks. This unit should be solely dedicated to monitoring activity to check
activities of banks on a regular basis.
b) Continuous development of anti money laundering act to meet international standards: (S3, T4)
Money laundering is the major issue emerging these days not only in Nepal, but all over the world. So,
financial institutions like banks should take precautionary measures to control such activities. For that
central bank should focus on continuous development of anti money laundering act that meets with
international standards.
WO Strategies
a) Reconsider the L/C transaction license provided to development bank: (W6, O1)
National level development banks are now allowed for Letter of Credit (L/C) transactions, but are only
limited to some hydro and infrastructure projects. Government should reconsider the L/C transaction
license provided to development banks in order to distinguish the operation lines between commercial
banks and development banks. A clear demarcation between the activities carried out by different class of
banks is the need of time, currently. Moreover, development banks do not have capacity to finance hydro
projects due to their small capital base, but they have opportunity to increase their size by merging with
commercial banks and once they merge with A class banks, they will automatically have chance to
conduct L/C transaction.
b) Develop a standard compensation structure throughout the banking industry: (W1, O3)
Normally skilled people are centered in the Kathmandu valley or the city areas. People in banking
industry do not have motivation to go to rural areas to work for minimum salaries. If standard
compensation structure for minimum level of salary is introduced throughout the banking industry, people
will be motivated to work in rural areas as well as they cannot be paid below certain level, however may
get excess benefit over that level. This way the problem of skilled manpower in development banks can
be solved.
WT Strategies
a) Facilitate technological advancement through technology transfer and trainings: (W4, T1, T4)
The issues of money laundering can be solved to some extent by developing transparency with the
support of advanced technology. Similarly, efficiency in service rendering can be achieved by providing
trainings to staffs in carrying out transactions by electronic medium instead of doing paper works. This
will reduce unhealthy competition as banks will be more directed at attracting customers via increased
level of service efficiency. So, technology transfer from city areas to villages as well as from abroad to
Nepal through FDIs should be encouraged by government for controlling the money laundering through
transparency and developing competitiveness.