Service Quality vs Loyalty

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Consumer Perception and Buying Behaviour

My comments: For "Effect of consumer perception towards their buying behaviour", it would mean consumer perception is the IV and it is necessary to find out what constitutes the consumer perception ? i.e. What are the variables under Consumer Perception:

A) On the goods itselves
i) Brand name is definitely one (e.g. branded LV is better than unbranded one)
ii) Country of production ( e.g. US made handbag is better than handbag made in 3rd world countries)
iii) Quality of goods ( e.g. If an item is expensive, the perception will be that it is better than cheaper ones ?)
iv) Packaging (e.g. Japanese food items are packed in very nice decoration, the consumer
will perceive that the food item ought to be "atas" and buy without second thought)
v) Price (If an item, its usual price is high but during sales, the price discount is huge,
the consumer will perceive it as value for money and buy more)
or Places (Shopping centres vs kampong stalls ?), Marketing efforts by the seller ?

B) On the consumers themselves
vi) Then how about Race? ( Whether different races have different consumer perception for the same item)
vii) Age ?
viii) Male or Female ?
ix) Ownership of properties ( Rich people and poor people - same behaviour for the same item?
x)Income level
Xi) Education level, which countries they are from and so on ..

Then what is the Dependent variable ?
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In my view, the DV will be the buying behaviour which can mean whether they would buy that product in the first place and/or buy more if the price is really cheap.

Data Analysis
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It is necessary to design a survey form, do the survey to analyse the data with the objective function : Consumer behavior = function of various inputs/factors of consumer perception.

The purpose is to find out which factor or factors are significantly - statistically, using SPSS - to influence the consumer buying behaviour. The result could be one, two, three ?

e.g. Your data analysis from the survey form may show Brand of product is the most important factor that affect the buying behaviour, the price many be second .. and the country of consumers
may be insignificant ?

i.e. Consumer is willing to buy more i.e. influenced by the price of the goods.

Articles to read
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I have found a few interesting articles as below for reference ....

26 Jun 2011
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Stress Test US Banks Jun 26, 2011

My comments: Once the scenario is defined e.g. the unemployment rate for a particular year is made known to the Bank, the bank will need to use their own financial model to project the impact to the repayment of loans and other consequences. Since each bank operates differently and has
different level of financial exposure, there wouldn't be a standard answer to the same scenario. After going through the analysis, the impact report will be submitted to the authority for assessment. The details are shown below. Please also search the Internet for better explanations.

27 Jun 2011
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Integrated Project - SGAM Fund

Integrated Project - SGAM Fund 2008
The project was a group project on fund management and administration.



The above document can be accessed via this url:Please click to view document

RM in Commercial Banking

Individual Assignment 2008
Basel III accord is important as far as banking RM is concerned. Perhaps, there is also a need to stress the Leyman Brothers' case to high light the importance of banking RM.

Some inforamtion of Basel III accord is as follows:
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In response to the global financial crisis in 2008, the Basel Committee on Banking Supervision (BCBS) set forth to update their guidelines for capital and banking regulations:

The guidelines present the Basel Committee's proposals to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. The objective of the Basel Committee's reform package is to improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy.
Basel III proposes many new capital, leverage and liquidity standards to strengthen the regulation, supervision and risk management of the banking sector. The capital standards and new capital buffers will require banks to hold more capital and higher quality of capital than under current Basel II rules. The new leverage and liquidity ratios introduce a non-risk based measure to supplement the risk-based minimum capital requirements and measures to ensure that adequate funding is maintained in case of crisis.

On December 19, 2009 the BCBS issued a press release which presented to the public two consultative documents for review and comment:

* Strengthening the resilience of the banking sector
* International framework for liquidity risk measurement, standards and monitoring

The Basel Committee on Banking Supervision (BCBS) allowed a public comment period (ended April 16, 2010) resulting in 272 responses to their request for comment.

Summary of proposed changes

* First, the quality, consistency, and transparency of the capital base will be raised.
o Tier 1 capital: the predominant form of Tier 1 capital must be common shares and retained earnings
o Tier 2 capital instruments will be harmonised
o Tier 3 capital will be eliminated.

* Second, the risk coverage of the capital framework will be strengthened.
o Strengthen the capital requirements for counterparty credit exposures arising from banks’ derivatives, repo and securities financing transactions
o Raise the capital buffers backing these exposures
o Reduce procyclicality and
o Provide additional incentives to move OTC derivative contracts to central counterparties (probably clearing houses)
o Provide incentives to strengthen the risk management of counterparty credit exposures

* Third, the Committee will introduce a leverage ratio as a supplementary measure to the Basel II risk-based framework.
o The Committee therefore is introducing a leverage ratio requirement that is intended to achieve the following objectives:
+ Put a floor under the build-up of leverage in the banking sector
+ Introduce additional safeguards against model risk and measurement error by supplementing the risk based measure with a simpler measure that is based on gross exposures.

* Fourth, the Committee is introducing a series of measures to promote the build up of capital buffers in good times that can be drawn upon in periods of stress ("Reducing procyclicality and promoting countercyclical buffers").
o The Committee is introducing a series of measures to address procyclicality:
+ Dampen any excess cyclicality of the minimum capital requirement;
+ Promote more forward looking provisions;
+ Conserve capital to build buffers at individual banks and the banking sector that can be used in stress; and
o Achieve the broader macroprudential goal of protecting the banking sector from periods of excess credit growth.
+ Requirement to use long term data horizons to estimate probabilities of default,
+ downturn loss-given-default estimates, recommended in Basel II, to become mandatory
+ Improved calibration of the risk functions, which convert loss estimates into regulatory capital requirements.
+ Banks must conduct stress tests that include widening credit spreads in recessionary scenarios.
o Promoting stronger provisioning practices (forward looking provisioning):
+ Advocating a change in the accounting standards towards an expected loss (EL) approach (usually, EL amount := LGD*PD*EAD).

* Fifth, the Committee is introducing a global minimum liquidity standard for internationally active banks that includes a 30-day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio called the Net Stable Funding Ratio.
* The Committee also is reviewing the need for additional capital, liquidity or other supervisory measures to reduce the externalities created by systemically important institutions.

As on Sept 2010, Proposed Basel III norms ask for ratios as: 7-9.5%(4.5% +2.5%(conservation buffer) + 0-2.5%(seasonal buffer))for Common equity and 8.5-11% for tier 1 cap and 10.5 to 13 for total capital (Proposed Basel III Guidelines: A Credit Positive for Indian)'

Macroeconomic Impact of Basel III

An OECD study released on 17 February 2011, estimates that the medium-term impact of Basel III implementation on GDP growth is in the range of −0.05 to −0.15 percentage point per annum. Economic output is mainly affected by an increase in bank lending spreads as banks pass a rise in bank funding costs, due to higher capital requirements, to their customers. To meet the capital requirements effective in 2015 (4.5% for the common equity ratio, 6% for the Tier 1 capital ratio), banks are estimated to increase their lending spreads on average by about 15 basis points. The capital requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending spreads by about 50 basis points. The estimated effects on GDP growth assume no active response from monetary policy. To the extent that monetary policy will no longer be constrained by the zero lower bound, the Basel III impact on economic output could be offset by a reduction (or delayed increase) in monetary policy rates by about 30 to 80 basis points.
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The assignemnt was based on Basel II accord.



The above document can be accessed via this url:Please click to view document

Inflation, Interest Rate and Exchange Rate

Inflation is an autonomous occurrence that is impacted by money supply in an economy. Central Banks use the interest rate [monetary policy, discretionary] to control money supply and, consequently, the inflation rate.

i) Interest rate vs Inflation
When interest rates are set high by the Central Bank, it becomes more expensive to borrow money and savings become attractive. A high interest rate influences spending patterns and shifts consumers and businesses from borrowing to saving mode. This influences money supply. [i.e. People are more willing to put money in banks to earn higher return than spending. This impacts on the circulation of money]

When people are less willing to spend, money supply in circulation is reduced, consequently there will be less spending on goods and services, and this reduces the demand and if the supply is not elastic, the price will drop and the inflation is checked.

If the Central government raises the income tax [fiscal policy], the disposal income is reduced. This impacts on the circulation of money. Thus, for similar reasoning, the inflation is checked.

Of course, by controlling the government budgets [deficit or surplus, fiscal policy], the money supply can be control to stimulate the economy or check the inflation.

A rise in interest rates boosts the return on savings in building societies and banks. Low interest rates encourage investments in shares. Thus, the rate of interest can impact the holding of particular assets.

A rise in the interest rate in a particular country fuels the inflow of funds. Investors with funds in other countries now see investment in this country as a more profitable option than before.
When interest rates are low, banks are able to lend more, resulting in an increased supply of money. Alteration in the rate of interest can be used to control inflation by controlling the supply of money.

ii) Exchange rate vs Inflation
The exchange rate affects the rate of inflation in a number of direct and indirect ways:
• Changes in the prices of imported goods and services – this has a direct effect on the consumer price index. For example, an appreciation of the exchange rate usually reduces the price of imported consumer goods and durables, raw materials and capital goods [against the weaker currency of the exporting country]. The effect of a changing currency on the prices of imported products will vary by type of import and also the price elasticity of demand which is influenced by the extent of competition within individual markets. The inflation is under check because of cheaper imports.

• Changes in the growth of exports – movements in the exchange rate affect the competitiveness of a country’s export industries in global markets. A higher exchange rate makes it harder to sell overseas because of a rise in relative export prices. If exports slowdown (price elasticity of demand is important in determining the scale of any change in demand), then exporters may choose to cut their prices, reduce output and cut-back employment levels. A fall in export demand will reduce real national income relative to potential output – and thus might lead to a negative output gap. This puts downward pressure on inflation. The inflation is again under check. But, another set of problem i.e unemployment of people will surface.

• The exchange rate and wage bargaining – some economists believe that the exchange rate influences the power of employees to bargain for increases in real wages. When the exchange rate is high, there is pressure on businesses to control their costs of production in order to remain competitive – this may lead to downward pressure on wage inflation.

Note: The final effects on inflation depend also on the response of economic policies to exchange rate movements. For example if a rising value of a currency causes inflation to drop below target, the Central Bank might opt to reduce short term interest rates in order to stabilise demand and prevent the risk of price deflation.