With the momentum that has lifted the banking sector’s performance over the first half of the decade slowing in all major markets, banks must leverage digital technology to battle disruption and stem the threat of disintermediation brought on by fast-moving, newer entrants–or pay the price in staying power and profitability.
This is the findings by Boston Consulting Group (BCG) in its latest Global Risk 2019: Creating a More Digital, Resilient Bank report.
This ninth annual survey of the health and performance of the banking industry by BCG examines global and regional profitability levels and how institutions can raise them, explores ongoing regulatory trends and how banks can navigate them, and examines how core risk and treasury functions must adapt both their operating models and their roles in the wider banking organisation to be more efficient and effective.
According to the report, while banking remains profitable on an absolute basis, total economic profit (EP), which adjusts for risk and capital costs, softened again in 2017 (the last year for which year-end statistics are available). It was a second straight year of decline. Since reaching a global-av¬erage high of 16 basis points in 2015, EP has slumped, falling to just 8 basis points in 2017. With that slide, average banking performance is now on a par with that of 2013, when the banking industry started to regain its footing after the global recession.
The report says that, for regulators, instilling trust in the strength and resiliency of financial markets has become a dominant focus. Banks must improve the quality and efficiency of regulatory compliance to meet their ongoing financial-stability, prudent-operations, and resolution obligations. Achieving this will require finding leaner and smarter ways to manage the high volume of regulatory revisions, as well as experimenting with new technologies and partnerships to drive down the cost of know-your-customer documentation and to improve anti-money-laundering processes.
Keen to protect financial markets from future shocks, regulators are trying to anticipate the ways that technology will reshape the banking ecosystem and, with it, their own role in establishing guidance and ensuring consistent standards.