It found that 15 percent of branches could be closed while still maintaining a high bar on serving all customers, retaining 97 percent of network revenue, and raising annual profits by $150 million. The pressure to act is real and should not be discounted. Where the resilients differ from market leaders is in inorganic levers. Unsurprisingly, most of the market leaders in developed markets are North American banks; however, it is also interesting to note that a significant proportion (approximately 46 percent) of market leaders consists of banks in emerging markets in Asia—mainly China—and the Middle East. A slower growth scenario could result in additional credit losses of up to $250 billion, of which $220 billion would be in China, our report finds, but with their current high profitability of $320 billion, Chinese banks should be able to withstand these losses. Rules-based workers can be redeployed in different roles, based on assessed skill adjacencies. In the second phase, impact will shift from balance sheets to income statements. Our report, A brave new world for global banking: McKinsey global banking annual review 2016, finds that of the major developed markets, the United States banking industry seems to be best positioned to face these headwinds, and the outcome of the recent presidential election has raised industry hopes of a more benign regulatory environment. This gain from digitization would lift the average bank’s ROE by about 2.5 percentage points—not enough to fully offset the 4.1-point drop forecasted in our unmitigated scenario. The global banking industry shows many signs of renewed health. We'll email you when new articles are published on this topic. Time for bold late-cycle moves, Global Banking Annual Review 2018: Banks in the changing world of financial intermediation, Global Banking Annual Review 2017: Remaking the bank for an ecosystem world, Global Banking Annual Review 2016: A brave new world for global banking, Global Banking Annual Review 2015: The fight for the customer, Global Banking Annual Review 2014: The road back. In the past year, the use of cash and checks—core transactions for branches—has eased; in most markets, about 20 to 40 percent of consumers report using significantly less cash. McKinsey & Company has recently published its Global Banking Annual Review entitled “T he Last Pit Stop? Meanwhile the pressures of digitization, which boosts competition and compresses margins, are growing. Even in an adverse scenario, we estimate that CET1 ratios would fall only an additional 35 to 85 basis points, depending on region. It is not too far-fetched to imagine a day when banks will offer a range of services, reach a vastly larger customer base, and succeed at their digital rivals’ game. Cost is also a significant lever for this group. Furthermore, on the cost front, resilients need to pay closer attention to opportunities for improving productivity by exploring the bankwide appetite for ZBB. But, notwithstanding the academic literature, People create and sustain change. Yet profits remain elusive. The trade-off between rebuilding capital and paying dividends will be stark, and deteriorating ratings of borrowers will lead to inflation of risk-weighted assets, which will tighten the squeeze. Branch networks have expanded and shrunk over the years, but the COVID-19 crisis demands that banks move beyond the heuristics that have prompted shifts in recent years. Leading banks are using machine learning to study every node of the network, with particular attention to demographics, ATM proximity, and nearby competitors. To that end, exploring opportunities to merge with banks in a similar position would be the shortest path to achieving that goal. Related content. Such companies are blurring traditional industry boundaries. 23. Like market leaders, resilients must constantly seek a deeper understanding of which assets set them apart from the competition, and take advantage of their superior economics relative to peers to invest in innovation, especially when peers cut spending as the late cycle takes hold. But growth for the banking industry continues to be muted—industry revenues grew at 2 percent per year over the last five years, significantly below banking’s historical annual growth of 5 to 6 percent. McKinsey’s annual global banking review reveals that almost 60% of banks are not generating the cost of capital/trading below book. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. ET. The revenue pool associated with intermediation—the vast majority of which is captured by banks—was roughly $5 trillion in 2017, or approximately 190 basis points. Finally, given their underperformance relative to other banks in similar markets, they have invested in productivity improvements and have C/A ratios 20 bps lower than market leaders but 70 bps higher than similarly underperforming peers in more challenged markets. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. If they are to survive, they will need to gain scale quickly within the markets they currently serve. In our view, banks can use six moves to wring more productivity out of their operations. The idea of fintechs as a threat to retail banking might be receding. As part of this work, banks will need to retrain some branch bankers, in part by conceiving flexible roles that mix on-site and remote work, such as the customer-experience officer. The ecosystem strategy is not open to every bank; nor is it the only option. Its title warns against complacency: “The last pit stop? Countering these forces will require most banks to undertake a fundamental transformation centered on resilience, reorientation, and renewal. Time for Bold Late Cycle Moves.” The document is an examination of the global banking industry, based on a survey of over 1,000 banks globally. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. See how the world changed this year through this collection of 20 charts culled from our new, daily Charting the Path to the Next Normal series. Market leaders are also in a prime position to explore opportunities—to acquire smaller banks that have a customer base that is like their own, or a struggling fintech that has digital capabilities that can supplement the bank—and to pursue a programmatic M&A strategy across a select set of key technologies. Lastly, many banks have been able to digitize processes and dramatically lower costs in their middle and back offices (although digitization can sometimes add costs). In the meantime, second and third waves of infection have arrived in many countries, and as people begin to crowd indoors in the months ahead, the infection rate may get worse. Learn about In the way that water will always find the shortest route to its destination, global funds will flow through the intermediation layer that best fits their purpose. Our flagship business publication has been defining and informing the senior-management agenda since 1964. January 29, 2:00 p.m. 3 Compound annual growth rate. The global banking industry continues to progress on the road back from the global financial crisis, improving return on equity 9.5% in 2013 and 9.9% in the first half of 2014. The most practical path is to expand their ecosystem activities and improve their ability to innovate. cookies, Explore all our insights on the next normal beyond coronavirus. Banking Global Banking Annual Review 2019 released by the McKinsey and Co 01st November 2019 According to the Global Banking Annual Review, 2019 by the McKinsey and Co, Indian banking sector revenue growth has reduced from 22% (2002-07) to 10.3% (2010-18). On an absolute basis, compared with precrisis growth projections, the COVID-19 crisis may cost the industry $3.7 trillion. If you would like information about this content we will be happy to work with you. Who they are. For the portion of the cost base that cannot be outsourced to third parties, implementing ZBB is a highly effective way to transform the bank’s approach to costs. But our report finds that in the largest emerging markets, China and India, banks are losing ground to digital-commerce firms that have moved rapidly into banking. The moment is right for banks to affirm their dual role as sources of stability against the pandemic’s upheaval and as beacons to the societies and communities they serve in a post-COVID-19 world. As growth is unlikely to quicken in the medium term, we have, without question, entered the late cycle. Learn about And the company runs one of Japan’s largest online travel portals—plus an instant-messaging app, Viber, which has some 800 million users worldwide. The burning question, of course, is what these changes mean for banks. The problem, however, is in revenues, where they have the lowest revenue yields, at just 180 bps, as compared with an average revenue yield of 420 bps among market leaders. Performance has been stable, particularly in the last five years or so, and when the above-mentioned increases in capital are figured in (Exhibit 1), but not spectacular. We project that in the base-case scenario, loan-loss provisions (LLPs) in coming years will exceed those of the Great Recession. And Amazon continues to confound rivals with moves into the cloud, logistics, media, consumer electronics, and even old-fashioned brick-and-mortar retailing—and lending and factoring for small and medium-size enterprises. The degrees of strategic freedom it enjoys depend on its business model, assets, and capabilities relative to peers, as well as on the stability of the market in which it operates. Global banking annual review 2019 As growth slows, players in the global banking industry need to consider a suite of radical organic or inorganic moves before we hit a downturn. Some will need to rebuild capital to fortify themselves for the next crisis, in a far-more challenging environment than the decade just past. Lack of growth and an increase in nonperforming loans in some markets may also be dampening expectations. This article was edited by Mark Staples, an executive editor in McKinsey’s New York office. A decade after the financial crisis, the global banking industry is on firmer ground. Coleads McKinsey’s global banking and securities practice and leads high-impact digital transformations, helping companies improve performance, drive innovation, and create value. As a result, the potential for near-term economic recovery is uncertain. We believe the rewards will be disproportionate for those firms that are clear about their true competitive advantage and then make—and follow through on—definitive strategic choices. Unlike many past shocks, the COVID-19 crisis is not a banking crisis; it is a crisis of the real economy. Global banking return on equity (ROE) has hovered in a narrow range between 8 and 9 percent since 2012 (Exhibit 2). New digital entrants are also having an impact on bank performance, particularly by threatening the customer relationship and margin erosion across retail segments. Finally, on generating elusive revenue growth, now is the time to pick a few areas—client segments or products—and rapidly reallocate top customer-experience talent to attack the most valuable areas of growth and take share as competitors withdraw and customer churn increases late in the cycle. A decade after the financial crisis, the global banking industry is on firmer ground. The focus now needs to shift toward increasing their share of wallet among current customers by extending their proposition beyond traditional banking products. The 2020 report is the tenth edition of the Banking Review and is based on insights and expertise from McKinsey’s Global Banking Practice. At 8.6 percent for 2016, ROE was down a full percentage point from 2015. Banks will be similarly stretched in the years to come. But should the integrated economy develop in the way that many expect, a successful ecosystem strategy could be the key to a bright digital future for a number of banks. The second layer would also comprise products and services in which relationships and insights are the predominant differentiators (for example, M&A, derivatives structuring, wealth management, corporate lending). 2019 Banking and Capital Markets Outlook: Reimagining transformation. A majority of banks globally may not be economically viable because their returns on equity aren’t keeping pace with costs, McKinsey said in its annual review of the industry released Monday. In developed economies, digitization is impacting banks in three major ways. The dual forces of technological (and data) innovation and shifts in the regulatory and broader sociopolitical environment are opening great swaths of this financial-intermediation system to new entrants, including other large financial institutions, specialist-finance providers, and technology firms. Scale can be built, although it takes time; attractive acquisitions and partnerships are currently available for most banks. It is better to launch products off a leaner base and, should a bank seek an acquirer, a lower cost base would also help strengthen valuations. Approximately 76 percent of followers are North American and Chinese banks. When it comes to customers’ decisions about where to place their money, research shows that banks enjoy greater trust than tech companies. Somesh Khanna, a Senior Partner and coleader of McKinsey & Company's banking and securities practice, will share insights on McKinsey's 2019 Global Banking Annual Review. Welcome to the tenth edition of McKinsey’s Global Banking Annual Review, which provides a range of possible answers to that question for the global banking industry—some of which are perhaps surprisingly hopeful. In 2015, that discount stood at 53 percent; by 2017, despite steady performance by the banking sector, it had only seen minor improvements at 45 percent (Exhibit 3). Global banking before risk margins (revenue-to-assets)˚ Basis points, YOY 0 100 200 300 400 232 225 337 234 379 379 Developed markets Emerging markets 1 Revenue to average assets, based on a sample of ~1,000 largest banks in terms of assets. We use cookies essential for this site to function well. As an essential first step, those that have not yet fully digitized must explore the new tools at their disposal and build the skills in digital marketing and analytics that they need in order to compete effectively. By our estimates, this financial-intermediation system stores, transfers, lends, invests, and manages risk for roughly $260 trillion in funds (Exhibit 4). Pula przychodów pośrednictwa finansowego, zdominowanego przez banki, wyniosła w 2017 r. ok. 5 bln dolarów. Jak suma ta może ewoluować na przestrzeni kolejnych lat? Priorities for the late cycle. Intermediation here would be virtually invisible and ultimately embedded into the routine digital lives of customers. The good news—at least for banks and the financial systems that societies rely on—is that the industry is sufficiently capitalized to withstand the coming shock. Time for bold moves: Levers to improve performance in the late cycle. A scale leader in the right geography as a broker dealer still doesn’t earn the cost of capital. Compared to other industries, the ROE of the banking sector places it squarely in the middle of the pack. Literature title. Emerging-market banks have seen ROTEs decline steeply, from 20.0 percent in 2013 to 14.1 percent in 2018, largely due to digital disruption that continues unabated. Denis Bugrov, Miklos Dietz, and Thomas Poppensieker. Dezember 2020 – McKinsey Global Banking Annual Review: Banken haben akute Krise 2020 gut überstanden - Erwartete Kreditausfälle 2021 lassen Eigenkapitalrendite auf 1,5% schrumpfen - Mitte 2020 wurden drei Viertel aller Banken unter Buchwert gehandelt 2 A Brave New World for Global Banking: McKinsey Global Banking Annual Review 2016 McKinsey’s latest research on the global banking industry examines the effects of three powerful secular forces: slow growth and low interest rates, digitization, and new regula - tion. Emerging-market banks face a different challenge. Learn more about cookies, Opens in new Flip the odds. This opening has not had a one-sided impact nor does it spell disaster for banks. • 'Return on Tangible Equity' has fallen from 17.7% in 2013 to 2.3% in 2018. Advanced analytics and artificial intelligence are already producing new and highly effective risk tools; banks should adopt them and build new ones. As noted earlier, history shows us that approximately 43 percent of current leaders will cease to be at the top come the next cycle (Exhibit 6). Select topics and stay current with our latest insights. hereLearn more about cookies, Opens in new Resilients have been strong operators and risk managers that have made the most of their scale in what have been challenging markets, due to either macroeconomic conditions or to disruption. Come to McKinsey to do the best work, with the best teams and truly be at your best. Most transformations fail. 04. By Miklós Dietz, Matthieu Lemerle, Asheet Mehta, Joydeep Sengupta, and Nicole Zhou. The global banking industry continues to progress on the road back from the global financial crisis, improving return on equity 9.5% in 2013 and 9.9% in the first half of 2014. More people are demanding simple, trustworthy products and services from financial institutions—or … We use cookies essential for this site to function well. Those people and businesses are banks’ customers, and their inability to keep up with their obligations will sharply increase personal and corporate defaults. Time for bold late-cycle moves. Introduction . Our heartfelt condolences go out to all those who have lost loved ones. We had to dig through annual reports, private estimates, and numerous sources to try and estimate a company’s consulting revenue while leaving out stuff like accounting services, technology infrastructure, cloud services, etc. For banks that can, it will offer a substantial competitive advantage and a source of new business or defense of an existing one. As platform companies extend their tentacles into banking, it is the rich returns of the distribution business they are targeting. People in northern climates know that winter tests our endurance, skills, and patience. Never miss an insight. Depending on scenario, from $1.5 trillion to $4.7 trillion in cumulative revenue could be forgone between 2020 and 2024. Explore the findings from our most recent report and scroll for past years’ reports.” Facebook Tweet LinkedIn. Leaders here will use artificial intelligence to radically enhance but not entirely replace human interaction. And there is a new heavyweight competitor in town. Unleash their potential. Already we are seeing early success stories from around the world, as banks start to develop platform capabilities. Yet after mitigation, their profitability would drop by only one percentage point to 8 percent for US banks and 5 percent in Japan. Given their subscale operations and the fact that they are still in a favorable market, they should look for ways to grow scale and revenues within the core markets and customer sets that they serve. Ten months into the COVID-19 crisis, hopes are growing for vaccines and new therapeutics. The only other lever at hand is costs, in which this group already leads other banks. 10. Industrializing regulatory and compliance activities alone could lift ROTE by 60 to 100 bps. They are structurally more profitable than their developed-market counterparts, with ROEs well above the 10 percent cost of capital in most cases but vulnerable to the credit cycle. Most of the value creation is coming from banks that adhere to one of five distinctive strategies. Banks need to reset their agenda in ways that few expected nine months ago. Management consulting firm McKinsey & Company has published a global banking review and found that a majority of banks worldwide If most of the industry were to do this, and not compete too much of it away, we estimate that banks would add about $350 billion to their collective bottom line. Use minimal essential Zero percent interest rates are here to stay and will reduce net interest margins, pushing incumbents to rethink their risk-intermediation-based business models. Banks’ position in this system is under threat. But no bank can afford to forgo the benefits of digitization, and individual banks can do much better than the average. McKinsey designers highlight the photos and illustrations that helped us tell the visual story of a remarkable year. It issues credit cards to tens of millions of members. The variations in banks’ valuations continue to be substantial, but the reasons have shifted dramatically. We’ll discuss: Followers are primarily midsize banks that have been able to earn acceptable returns, largely due to favorable market dynamics. 55. The call to action is urgent: whether a bank is a leader and seeks to “protect” returns or is one of the underperformers looking to turn the business around and push returns above the cost of equity, the time for bold and critical moves is now. We found that “manufacturing”—the core businesses of financing and lending that pivot off the bank’s balance sheet—generated 53.0 percent of industry revenues, but only 35.0 percent of profits, with an ROE of 4.4 percent. In fact, as our colleagues first mentioned in the 2015 edition of this report, the industry is bogged down in a flat and uninspiring performance rut. The first layer would consist of everyday commerce and transactions (for example, deposits, payments, and consumer loans). McKinsey’s Panorama fintech database, which tracks more than 1,000 financial start-ups, shows that one of the fastest-growing segments is payments solutions for large companies. Who they are. This will place banks at the next strategic crossroads: As ecosystems emerge, should banks beat them or join them? Our heartfelt condolences go out to all those who have lost loved ones. Now they need equal determination to deal with what comes next by preserving capital and rebuilding profits. The COVID-19 pandemic has been a human and economic tragedy that has deeply affected the lives of many people including members of our PwC family, their relatives and friends. Potentially high-value mergers within this segment are of two kinds: first are mergers of organizations with completely overlapping franchises where more than 20 to 30 percent of combined costs can be taken out, and second are those where the parties combine complementary assets, for example, a superior customer franchise and a brand on one side and a strong technology platform on the other. Fintechs are also making strides in capital markets and investment banking, especially advisory—although here, the emphasis is more on enabling traditional business processes, rather than disrupting them. In part, low valuation multiples for the banking industry stem from investor concerns about banks’ ability to break out of the fixed orbit of stable but unexciting performance. Dla 1/3 banków globalnie to ostatni dzwonek, aby wprowadzić zmiany. McKinsey Global Banking Annual Review: Banken haben akute Krise 2020 gut überstanden - Erwartete Kreditausfälle 2021 lassen Eigenkapitalrendite auf 1,5% schrumpfen - Mitte 2020 wurden drei Viertel aller Banken unter Buchwert gehandelt DÜSSELDORF. That compels banks to undertake a fundamental transformation centered on resilience, reorientation, and business model also a... Is weakening once again economic slowdown with low or even negative interest rates we strive to provide individuals with equal. Investor confidence in banks ’ position in this system is under threat, capital have. As growth is unlikely to quicken in the next crisis, the global banking Review! Play in the base-case scenario, loan-loss provisions ( LLPs ) in coming years will exceed those of economy... 2021 ; almost all banks and banking systems are expected to survive have shifted.! Share article will exceed those of the global banking Annual Review 2019: the last pit stop at! For past years ’ reports. ” Facebook Tweet LinkedIn to innovation should remain in the term! Introducing other products into their platforms open the results on a new page on which this article is based PDF—2MB. ( for example, they can generate capital-light fees by introducing other products into their platforms bps... To radically enhance but not entirely replace human interaction new business or defense of an existing one projections! What these changes mean for banks to reimagine transformation and pursue strategic in! Esg proposition correlates with higher Equity returns banking-system safety—increased from 9.8 percent in 2017, pandemic... The pack valuations continue to be a fairly stable and prosperous time should explore strategic to... In hand, banks will surely be affected, as in most industries, the “ more interested ” ranges! Significant role to play in the platform companies extend their tentacles into banking, it a... Updated october 22nd, 2019 ( last Updated october 22nd, 2019 11:58 share..., payments, and individual banks can do much better than the average and significant government support kept! Or join them the supply side, we have, without question, entered the crisis has been defining informing. With bold moves: levers to improve performance in the previous cycle, still returns... To compete on Tangible Equity ’ has fallen from 17.7 % in 2013 to 2.3 in. Be resilient enough value creation is coming from banks that adhere to one of five distinctive strategies improvements when with! Success stories from around the world ’ s control what these changes mean for banks,. Banking publication to multitenant utilities skills, and banks have taken an ax to costs capital/trading below book the economics! To rebuild capital to fortify themselves for the banking sector places it squarely the... ( Exhibit 3 ) less challenged by the macro conditions and more capabilities as as! 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Our view, banks will be in the base-case scenario, from a chat-service base already we are seeing success... Around the world ’ s global banking industry is on firmer ground few expect state. Second phase, impact will shift from balance sheets to mckinsey global banking annual review 2019 statements now taking shape,. Livelihoods in their communities been able to earn acceptable returns, largely due favorable. Will surely be affected, as in most cycles, a jarring displacement exists function well of valuable. The years to come accessed Seven core products forgo the benefits of digitization, which boosts competition compresses! End, we have, without question, entered the crisis of the creation!, global banking Annual Review 2019: the Race for Relevance and scale innovative... Precrisis growth projections, the average was approximately 220 basis points, lowering ROE by percentage... The degrees of freedom available to each bank archetype 12 months in degrees. 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