Question

Briefly discuss the business of wholesale banking, including the main products and services, as well as the customer base. What are the key challenges in the wholesale banking market?

Answer 1

Wholesale banking is providing banking services to large corporations and clients (high net worth individuals). Large corporations include other banks, non-banking financial corporations, large-cap corporate companies, mid-cap corporate companies etc.

The main products and services in wholesale banking are:
1. Currency exchange/foreign exchange transactions at wholesale rates.
2. Various Forward contracts.
3. Interest rate swap.
4. Currency swap.
5. Forward swap.
6. Interest rate risk management.
7. Underwriting services.
8. Potential mergers and acquisition ideas and deals.
9. Advisory services.
10. Fund management.

Disadvantages of wholesale banking
1. During difficult times for clients, the banks can exploit the client.
For example: suppose loan is taken by keeping company shares as collateral. If the share price falls down the client has keeps more shared as collateral due to which there is a negative sentiment in the market, which leads to falling down of the share price. Again more shared as collateral- at last, the banks get company shares at dirt cheap prices when a client defaults.

2. High risk involved by a single non-performing asset.

3. Managing wholesale banking accounts is costlier than retail banking account.