Banks are financial institutions and they accept deposits from the general public and offer loans to the people. They either perform the lending activities directly or indirectly through the capital market. However, the banking industry plays a key role in the country’s economic growth and financial stability. Today, we’ll discuss the PESTLE analysis of Banking Industry; it focuses on external environmental factors like; political, economic, social, technological, legal, and environmental factors.
Political Factors Impacting Banking Industry
Some of the main political factors in the Banking Industry PESTLE analysis are as follows;
I-Government Regulations
The government regulations are very strict and tight for the financial institutions and the banking industry. They focus on areas like interest rate, trade policies, import and export regulations, inflation rate, and others. However, the goal of government financial policies and regulations is to regulate the banking industry, stabilize the country’s economy, and promote businesses and companies.
II-Political Stability
The stable political environment of the country plays a key role for the growth of Banking Industry. When the country is going through the political turmoil, violent activities, roadblocks, and processions, then it jeopardizes the trust and confidence of many potential investors. People and investors would avoid depositing their capital resources into the failing economy.
III-Public Confidence
In order to earn the trust and confidence of customers and investors, government launches various types’ promotional offers like higher interest and lower taxes. The government assures investors and people that they could safely deposit their financial resources into the banks and financial institution without worrying financial collapse, because the government has its back.
Economical Factors Affecting Banking Industry
Some of the main economic factors in the Banking Industry PESTLE analysis are as follows;
I-Economic Recession
The economic condition of the country directly impacts the growth of businesses and companies. When the country’s economy is going through the recession phase, higher interest and inflation rate would negatively impact the spending habits of customers. Foreign investors would avoid invest their capital into the country due to the higher fluctuation in the currency exchange rate.
II-Business Loans
Banking Industry plays a critical role for the growth of businesses and companies. Financial institutions offer low interest rate loans to the businesses and companies to attract potential investors and promote small business. Such types of financial offers would attract the attention of potential investors and promote local businesses.
III-Interest Rate
Interest rate is the key economic indicator and it directly impacts the growth of Banking Industry. When the government and the central bank increases the interest rate, they’re attracting investors to deposit their money into the banks. However, the business investment rate drops due to the higher business loan interest rate.
Social Factors Impacting Banking Industry
Some of the main social factors in the Banking Industry PESTEL analysis are as follows;
I-Social Responsibility
Banking Industry has a great social, moral, and ethical responsibility on their shoulders. They should develop and introduce such financial regulations and laws that are socially responsible. It means that their focus should be on creating employment opportunities for the local people, promoting businesses, and keeping products and goods at an affordable price range.
II-Demographic Shift
The demographic of the customer market has shifted toward Millennial and Generation-Z. They both contribute a significant portion of the customer market. However, the needs and demands of the new demographic customer market are different. For instance, the Millennial and Generation-Z are tech-oriented and they want a digital and seamless transaction experience.
III-Managing Reputation
Banking Industry needs to invest a significant amount of capital resources to strengthen its firewall and cybersecurity system. It allows them to build a reputation of a strong and secure financial institution and the bank, customers and investors would feel safe and secure to deposit their capital resources into the bank.
Technological Factors Affecting Banking Industry
Some of the main technological factors in the Banking Industry PESTEL analysis are as follows;
I-Advanced Technology
Banking Industry is investing a lot of capital resources in the latest advanced technology like AI, ML, cybersecurity, data analytics, and automation. It allows them to smoothly perform their transactions, predict the customer market trends, and offer the relevant financial services to the customers to satisfy their needs and demands.
II-Digital Banking
Many banks and financial service providing companies have setup their mobile applications and web platforms to offer the seamless shopping experience to the customers. They allow customers and users to easily perform any type of transaction at any time without visiting and going to the bank.
III-Cybersecurity Risks
The risk and threats of cybersecurity attacks and hacking have make people cautious about their private data. They invest significant amount capital resources on strengthening their firewall system and database. However, it allows them to earn the trust and confidence of customers by security the private data of users and customers.
Legal Factors Impacting Banking Industry
Some of the main legal factors in the Banking Industry PESTEL analysis are as follows;
Regulatory Compliance
Banking Industry needs to comply with the government regulations and policies of different countries. It comprises of interest rate, inflation rate, taxes, trade tariff, import and export regulations, policies for foreign investment and investors, and others. However, regulatory compliance would help them to smoothly perform their operations and transactions without any disruption and delays.
Environmental Factors Affecting Banking Industry
Some of the main environmental factors in the Banking Industry PESTEL analysis are as follows;
Sustainability Initiative
Banking Industry should make a strong commitment to the environmental sustainability initiative. It comprises of investing in the renewable sources of energy, social responsibility, and recycling of electronic devices to decrease the carbon impact. Environmental sustainability initiative would help them to keep up with the growing sustainability trends.
Conclusion: Banking Industry PESTLE Analysis |PESTEL Analysis of Banking Industry |External Environmental Analysis of Banking Industry | Strategic Analysis of Banking Industry
After an in-depth study of the pestle analysis of Banking Industry; we have realized that Banking Industry plays a key role in the growth of countries. If you are learning about the Banking Industry PESTLE analysis; then you should keep in mind the abovementioned external environmental factors like; political, economic, social, technological, legal, and environmental.
Ahsan Ali Shaw is an accomplished Business Writer, Analyst, and Public Speaker. Other than that, he’s a fun loving person.
