tab. Even in an adverse scenario, we estimate that CET1 ratios would fall only an additional 35 to 85 basis points, depending on region. McKinsey released its eighth annual review of the global banking industry on November 7, “New rules for an old game: Banks in the changing world of financial intermediation”, based on data and insights from Panorama, McKinsey’s proprietary banking research arm, as well as the experience of clients and practitioners from all over the world. “Platform” companies such as Alibaba, Amazon, and Tencent—about which we’ll have more to say later—are staking a claim to banks’ customers and the revenues and profits they represent. Time for bold late-cycle moves, the full report on which this article is based (PDF—2MB). Intermediation here would be virtually invisible and ultimately embedded into the routine digital lives of customers. Please use UP and DOWN arrow keys to review autocomplete results. Learn more about cookies, Opens in new Global Annual Review 2020 Working together to build a better tomorrow. Banks will be similarly stretched in the years to come. McKinsey designers highlight the photos and illustrations that helped us tell the visual story of a remarkable year. 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. First, regulators, who were initially more conservative about the entry of nonbanks into financial services, are now gradually opening up. Consider Rakuten Ichiba, Japan’s single largest online retail marketplace. cookies, Explore all our insights on the next normal beyond coronavirus. Such companies are blurring traditional industry boundaries. Meanwhile the pressures of digitization, which boosts competition and compresses margins, are growing. With an average C/A ratio that is 70 bps higher than peers in more challenged markets (where challenged banks as a group have pulled the cost lever harder than other archetypes), followers have the potential to improve productivity significantly. As growth is unlikely to quicken in the medium term, we have, without question, entered the late cycle. Each bank is unique. Global return on tangible equity (ROTE) has flatlined at 10.5 percent, despite a small rise in rates in 2018 (Exhibit 2). Global Annual Review 2020 Working together to build a better tomorrow. The first layer would consist of everyday commerce and transactions (for example, deposits, payments, and consumer loans). ET. Most of the value creation is coming from banks that adhere to one of five distinctive strategies. With those assets in hand, banks will be ready when the ecosystem economy arrives. hereLearn more about cookies, Opens in new Yet after mitigation, their profitability would drop by only one percentage point to 8 percent for US banks and 5 percent in Japan. 07. cookies, McKinsey_Website_Accessibility@mckinsey.com, Global Banking Annual Review 2020: A test of resilience: Banking through the crisis, and beyond, Global Banking Annual Review 2018: New rules for an old game: Banks in the changing world of financial intermediation, are blurring traditional industry boundaries, to mountains of incredibly valuable customer data, application programming interfaces and apps, design and deliver an extraordinary customer experience, Global Banking Annual Review 2017: The Phoenix Rises: Remaking the Bank for An Ecosystem World, the innovative, end-to-end ecosystem orchestrator, the bank focused on specific business segments, the traditional but fully optimized and digitized bank. January 29, 2:00 p.m. (Note that as recently as 2011, the average was approximately 220 basis points.). Rules-based workers can be redeployed in different roles, based on assessed skill adjacencies. Geography, however, is no longer destiny. In numerical terms, the global Tier 1 capital ratio—one measure of banking-system safety—increased from 9.8 percent in 2007 to 13.2 percent in 2017. 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. While the jury is still out on whether the current market uncertainty will result in an imminent recession or a prolonged period of slow growth, the fact is that growth has slowed. This will place banks at the next strategic crossroads: As ecosystems emerge, should banks beat them or join them? Banks are also losing share in some products, especially in emerging markets. With their superior customer experience, they can sell an ever-wider range of products to their loyal customers. Reinvent your business. Our research finds that in the months and years to come, the pandemic will present a two-stage problem for banks (Exhibit 1). The idea of fintechs as a threat to retail banking might be receding. Our view of a streamlined system of financial intermediation, it should be noted, is an “insider’s” perspective: we do not believe that customers or clients will really take note of this underlying structural change. On the first, we find that the domicile of a bank explains nearly 70 percent of underlying valuations. Time for bold late-cycle moves. We use cookies essential for this site to function well. 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. As banks move from their traditional focus on products and sales to customer-centric marketing, they should reconfirm that their source of distinctiveness is still potent, design and deliver an extraordinary customer experience, and build the digital capabilities needed not just for the next few years but also for the longer term. A decade on from the global financial . 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. 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. Yield curves are also flattening. Worldwide, risk costs are at an all-time low, with developed-market impairments at just 12 bps. Japanese and US banks have between $1 billion and $45 billion in profits at risk by 2020, depending on the extent of digital disruption. In the base-case scenario, we expect that globally, revenues could fall by about 14 percent from their precrisis trajectory by 2024 (Exhibit 3). In the second phase, impact will shift from balance sheets to income statements. There may be no better time than now for banks to reimagine transformation and pursue strategic change in 2019. Learn more about cookies, Opens in new This opening has not had a one-sided impact nor does it spell disaster for banks. 4 Equatorial Guinea and Libya are plotted manually because of negative growth rates over this period. Banks in Africa could lose between $1.5 trillion to $4.7 trillion in revenue in four years to 2024 arising from Covid-19 economic turmoil, according to a survey by McKinsey. Digital upends old models. However, they should remain alert to the possibility of a compelling distressed asset becoming available. Branch bankers can perform their traditional teller tasks with some portion of their time. First will come severe credit losses, likely through late 2021; almost all banks and banking systems are expected to survive. Unlike many past shocks, the COVID-19 crisis is not a banking crisis; it is a crisis of the real economy. 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. www.mckinsey.com • It offers financial products and services that range from mortgages to securities brokerage. 2 Private markets come of age McKinsey Global Private Markets Review 2019 Executive summary Welcome to the 2019 edition of McKinsey’s annual review of private investing. 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. Unsurprisingly, most of these banks are in Western Europe, where they contend with weak macro conditions (for example, slow loan growth and low interest rates). Developed-market banks are most affected, with $90 billion, or 25 percent, of profits at risk, but emerging-market banks are also vulnerable, especially to the credit cycle. We see three imperatives that will position banks well against the trends now taking shape. McKinsey & Company today released its Global Banking Annual Review, the consultancy’s flagship banking publication. However, their returns (on average 9.6 percent ROTE) have been little more than half of those of market leaders, who have also operated with the same favorable market dynamics. Global banking return on equity (ROE) has hovered in a narrow range between 8 and 9 percent since 2012 (Exhibit 2). ET. By Evie Rusman October 22, 2019 According to new research, the banking industry is struggling as it approaches the end of the current economic cycle. Unlike many past shocks, the COVID-19 crisis is not a banking crisis; it is a crisis of the real economy. We see new evidence of those trends—and they are happening faster than we expected. 10. The spate of alliances and acquisitions between retail banks and fintechs has helped to solidify the notion that the land grab is over. This condensed financial-intermediation system may seem like a distant vision, but there are parallel examples of significant structural change in industries other than banking. collaboration with select social media and trusted analytics partners Not only do they have exceptional data that they exploit with remarkable effectiveness but also, more worrisome for banks, they are often more central in the customer journeys that include big financial decisions. 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. With an average C/A ratio of 130 bps, challenged banks as a group still have a good 50 bps to cover before they produce the best-in-class cost bases we’ve seen from Nordic banks. The variations in banks’ valuations continue to be substantial, but the reasons have shifted dramatically. It is a societal force that compels banks to get ahead of the curve. Who they are. Banks in Europe and the United Kingdom have $35 billion, or 31 percent, of profits at risk; more severe digital disruption could further cut their profits from $110 billion today to $50 billion in 2020, and slice returns on equity (ROEs) in half to 1 to 2 percent by 2020, even after some mitigation efforts (see exhibit for how digitization may reduce fees and margins across different businesses). To put some hard numbers against what may seem like a distant threat to some banking leaders, we calculated the value at stake for global banking should platform companies successfully split banking in two (Exhibit 5). Of course, there will be offsetting positive effects for the industry, such as a need to refinance existing debt, and some regions and industry segments will still benefit from secular tailwinds. On the latter, followers, which have underperformed their peers in buoyant markets, should also reevaluate their portfolios and dispose of nonstrategic assets before the market turns. • 'Return on Tangible Equity' has fallen from 17.7% in 2013 to 2.3% in 2018. Most of the value creation is coming from banks that adhere to one of five distinctive strategies. Along with stagnating growth, banks face enormous challenges to digest the wave of postfinancial-crisis regulation, despite industry hopes of a more benign regulatory environment in the United States. Harnessing the new powers of data-driven marketing, a digital workbench for sellers, robotic process automation, the cloud, application programming interfaces and apps, and all the other tools now available is an essential step for banks. 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). The principal driver of their underperformance relative to market leaders is in revenue yields, where they are 100 bps lower. our use of cookies, and A decade after a financial crisis that shook the world, the global banking industry and financial regulators have worked in tandem to move the financial system from the brink of chaos to a solid ground with a higher level of safety. 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 Global industry market capitalization increased from $5.8 trillion in 2010 to $8.5 trillion in 2017. Use minimal essential And in many cases, they are better positioned for distribution than banks are. 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. If they are to survive, they will need to gain scale quickly within the markets they currently serve. For a print-ready version, please click here (PDF–6MB). Organically, growth priorities for this group are best realized by achieving a high standard of CX and improving the bank’s innovation capabilities, with an emphasis on understanding ways to better serve the specific needs of their niche market rather than developing revolutionary new products. They must act because they have a crucial role to play in the work to restore and sustain livelihoods in their communities. But they have some things going for them. Conclusion. When it comes to customers’ decisions about where to place their money, research shows that banks enjoy greater trust than tech companies. Global Banking Annual Review, McKinsey zwraca uwagę na to, że dla jednej trzeciej banków to ostatni dzwonek, aby wprowadzić nowe modele biznesowe, poprawić wzrost nieorganiczny lub przeprowadzić gruntowną restrukturyzację. 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. ‘Return on Tangible Equity’ has fallen from 17.7% in 2013 to 2.3% in 2018. A decade after the financial crisis, the global banking industry is on firmer ground. Be it scale across a country, a region, or a client segment. by Sabrina I. Pacifici on Dec 10, 2020 “Updated annually, our Global Banking Annual Review offers the best of our research and insights into the global banking industry. But victory over the novel … The four archetypes are defined by two dimensions: the bank’s strength relative to peers and the market stability of the domain within which the bank operates (Exhibit 3): To identify the degrees of freedom relevant for each bank archetype, we assessed who they are, or a description of how banks in each archetype have performed economically in recent years (Exhibit 4), and where they live, or the underlying health of the markets in which they operate (Exhibit 5). Several regions and business lines have done better, and some institutions are outperforming due to strategic clarity and relentless execution on both their core businesses and their efforts to improve. They must embed newfound speed and agility, identifying the best parts of their response to the crisis and finding ways to preserve them; they must fundamentally reinvent their business models to sustain a long winter of zero percent interest rates and economic challenges, while also adopting the best new ideas from digital challengers; and they must bring purpose to the fore, especially environmental, social, and governance (ESG) issues, and collaborate with the communities they serve to recast their contract with society. Furthermore, if they are to be among the 37 percent of follower banks that become leaders regardless of the market environment, now is the time to build the foundation, as they still have time to benefit from the excess capital that operating in a favorable market gives them. Compounding this situation is the continued threat posed by fintechs and big technology companies, as they take stakes in banking businesses. McKinsey Global Banking Annual Review 2020: A test of resilience As the COVID-19 pandemic rolls on, banks must prepare for a long winter. 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). 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. Now it is corporate banking’s turn, with collaborations between Standard Chartered and GlobalTrade, Royal Bank of Scotland and Taulia, and Barclays and Wave showing that when innovation meets scale, good things can happen. 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