Swot Analysis for Keystone Bank Essay Example for Free

Swot Analysis for Keystone Bank Essay Keystone has a few strengths looking at its present financial condition financial statements. However, the bank is willing and able to pay higher competitive rates compared to other banks in the area. This is likely to send a strong signal to potential customers who may wish to take advantage of the rates by increasing their core deposits at Keystone Bank. Also, increasing local economic activities can also be viewed as strength to keystone. This is because if the local people are making more money than they need, they will be willing to save some especially at high rates of return which would benefit them and Keystone at the same time. It will increase their core deposits and decrease their dependence on other sources for loanable funds. Commercial and consumer loans are also strength of keystone looking at the two year period compared to their peers. They need to capitalize on that and see if they offer some commercial loans to the new company’s coming into town at competitive rates. Weakness: Keystone Bank has a wide range of weaknesses compared to its peers. Some of their weaknesses are a result of their high exposure to credit risk, interest rate risk and liquidity risk. Credit risk can be defines as the risk of a corporation not being able to pay its debt as they become due. Keystone has a lot of CD’s on its books and need to pay the holders of the CD as they become due. This is going to put a lot of financial stress on the bank considering the fact that interest rates are low and the national economy is slowing down. Liquidity risk can be defined as a company’s ability to convert its assets into cash at fair market value. Keystone Bank’s liquidity measures are below the average of its peers. If you consider its temporary investments to assets for 1990 and 1989, they were 10. 64% and 11. 02% compared to 15. 07% and 16. 15% of its peers. This means that Keystone Bank is investing in products that cannot be quickly converted into cash at fair market price. They are also offering CD’s at a high rate compared to its peers. Other liquidity measures such as volatile liability to assets, is more than 11 % above the average of its peers. This means that Keystone has huge liabilities on its balance sheet which can easily be defaulted on. Net loans leases to core deposits also show an even high trend. There is over 25% difference between Keystone Bank and its peers. In the last two years Keystone’s funds for lending to its customers have mainly come from borrowed money instead of core deposits. This means that the bank make interest payment on the money it lends to its customers which has put it at a disadvantages in terms of offering competitive rates to its customers. It also indicates that in the case of any liquidity crises Keystone bank will not be able to convert its investments into cash at fair market value as quickly as it may want. A banks largest asset is its loans or loanable funds which is not the case for Keystone bank. Lack of clear written policies regarding liquidity and interest rate management by the bank has made it difficult for managers to make good asset and liability decisions. This could be part of the reason why instead of loaning funds to customers, the bank is selling CD’s and increasing their liabilities. Opportunities: Design of the new information system of financial reports will help management make informed decisions on how best to use the banks resources and also meet the examiners criticisms. An increase in the population in the area provides a great opportunity for the bank. The bank can capitalize on this and help it propel into the future. The establishment of new facilities by three national firms in the area – an electronics company, automotive parts and accessories manufacturer and the building materials supplier – is expected to flood the local economy with about 2700 jobs. This is great news for Keystone since it can use incentives such as free checking accounts to bring in new customers and increase its deposits. It can also find new and qualified customers who might be interested in real estate, consumer and other types of loans. The establishment of the new interest rate sensitivity and liquidity reports will help management monitor and understand changes in interest rates and liquidity and how they affect the bank. Keystone can take advantage of the current low interest rates and borrow money from the Federal Reserve Bank. With interest rates expected to rise in the near future, Keystone can increase its adjusted rate mortgages to customers instead of fixed rate mortgages in hopes to increasing their returns when interest rates rises. Threats: There are numerous threats that Keystone faces as a bank. First there is the threat of other banks and thrifts in the area who will also take advantage of the expected increase in the local economy. Most of the banks in the area may be able to offer relatively high interest rates to lure in new customers. If these banks are in a better financial position compared to Keystone that will put them at an advantage over Keystone. Also, the thrifts will also compete for the same 2700 people who will be acquiring the new jobs moving into the area. The bank need to work hard to decrease it CD’s and increase its loans if it wants to survive in the long run. Lastly, even though the local economy might be booming the thought of an economic slowdown in other parts of the country may have a negative impact on the spending practices of the locals. This may result in people saving all their monies instead of spending or avoiding loans all together.