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How Do I Conduct a PEST Analysis for a Bank?

K.C. Bruning

Last Modified Date: January 28, 2024

In the process of conducting a political-legal, economic, socio-cultural, and technological (PEST) analysis for a bank, several environmental and regulatory factors are typically considered. Some of the specific things that can affect a bank include local regulations, citizen’s feelings about using banks, and whether the economic climate can support a new financial institution. The analysis can help a bank to determine how to position itself strategically as it determines the best methods for approaching marketing, opportunities, and the development of the business. A PEST analysis for a bank may also be useful in helping to determine whether it is advisable to enter a new market.

The first step of a PEST analysis for a bank is an examination of the political environment. One of the key elements of this task is to determine the overall restrictions and support that can be expected from the government. By studying other banks in the same sector, it can be possible to get an idea of what the current environment is for financial institutions. This is a particularly important step for a foreign bank, as government regulations can vary widely among different countries.

A PEST analysis can help a bank to determine how to position itself strategically.

Next, the PEST analysis for a bank will typically be used to determine the economic climate. Important elements to consider include the overall health of the market, interest rates, and inflation. A bank may also find it useful to make projections as to the long-term stability of the economy. The goal is to determine whether another financial institution could thrive in the current and developing economy.

Companies use PEST analysis factors to determine how external government forces may alter operational plans.

Another part of a PEST analysis for a bank is the examination of socio-cultural aspects that could affect the business. One of the most important aspects of this step is to determine the cultural attitude towards money-related issues. This can include things such as overall feeling about banks, how savings are approached, and general attitudes about loans. A foreign company may wish to determine whether it would be welcomed and trusted by the citizens in the targeted area.

The final step of a PEST analysis is the technological aspect. It is advisable for the bank to determine whether it has the technical resources to effectively serve its customers. This includes having the capacity to upgrade systems and adopt new technologies that are efficient and effective. It is also important that technology enable the bank to serve the customers as they find it most convenient. This means ensuring that systems are not only appropriately updated, but easy for the target customer to use.

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Discussion Comments

SarahGen

May 13, 2013

I did a PEST analysis for a bank last semester for class. It was an interesting project. I looked at an American bank and how it works with local governments. Banks have their own regulations but they also have to work with the regulations and laws of that government.

The other important part of my analysis was technology and service. If banks have many branches, they have to make sure that they are providing the same service, technology and opportunities at each branch. Otherwise, the bank loses its credibility and trust.

And the last part is keeping up with all the developments taking place in the global banking sector.

burcinc

May 12, 2013

@fify-- It can definitely be an issue, especially when setting up a bank branch in an overseas market. That culture might not be familiar with banks, bank accounts and ATMs. Furthermore, the policies of the bank can be religiously or culturally unacceptable.

For example, in many Muslim countries, interest is forbidden and banks that give and take interest may not be allowed. Even if the government allows it, the people may not use the bank.

So a bank that wants to open branches overseas has to consider the social and cultural factors as much as the other factors when doing their analysis.

fify

May 12, 2013 I can see how political, legal, technological and economic factors may become an issue when establishing a bank. But do social-cultural factors ever become an issue? It seems unlikely.