All while building the talent and the advanced data-analytics infrastructure required to compete. Related Articles Article - McKinsey Quarterly Bubbles pop, downturns stop. It is a societal force that compels banks to get ahead of the curve. this one seems different. 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). Priorities for the late cycle. McKinsey Global Banking Annual Review 2016. 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. 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. Come to McKinsey to do the best work, with the best teams and truly be at your best. 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. Regions would follow slightly different paths, but the overall system should be resilient enough. Consider the impact of online ticket booking and sharing platforms such as Airbnb on travel agencies and hotels or how technology-enabled disruptors such as Netflix upended film distribution. 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. We’ll discuss: Blog Post Resilience through a downturn. Press enter to select and open the results on a new page. Three formidable forces - a weak global economy, digitization and regulation - threaten to significantly lower profits for the global banking industry over the next three years, according to McKinsey's newly-published 2016 Global Banking Annual Review, entitled A Brave New World for Global Banking. By our estimates, this financial-intermediation system stores, transfers, lends, invests, and manages risk for roughly $260 trillion in funds (Exhibit 4). McKinsey Global Banking Annual Review 2020. 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. “Ten months into the COVID-19 crisis, hopes are growing for vaccines and new therapeutics. Even in an adverse scenario, we estimate that CET1 ratios would fall only an additional 35 to 85 basis points, depending on region. “Distribution,” on the other hand—the origination and sales side of banking—produced 47 percent of revenues and 65 percent of profits, with an ROE of 20 percent. The spate of alliances and acquisitions between retail banks and fintechs has helped to solidify the notion that the land grab is over. Other measures of risk have improved as well; for example, the ratio of tangible equity to tangible assets has increased from 4.6 percent in 2010 to 6.2 percent in 2017. 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. Who they are. Tinkering around the edges, as many banks have done for years, is not adequate to the scale of the task and will only exacerbate the sense of fatigue that comes from years of one-off restructurings. While the trend line shows a nicely upward slant, the fact is that revenue growth has slowed dramatically: between 2015 and 2016 the rate was 3 percent, half that of the previous five years. The result will be a financial sector that is more efficient and delivers value to customers and society at large. 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. (Note that as recently as 2011, the average was approximately 220 basis points.). Underlying constraints of a business model also have a significant role to play. 10. Please use UP and DOWN arrow keys to review autocomplete results. A prolonged economic slowdown with low or even negative interest rates could wreak further havoc. Please click "Accept" to help us improve its usefulness with additional cookies. ET. 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. More people are demanding simple, trustworthy products and services from financial institutions—or … When it comes to customers’ decisions about where to place their money, research shows that banks enjoy greater trust than tech companies. Three universal organic performance levers that all banks should consider are risk management, productivity, and revenue growth. These banks, even with declining ROTEs in the previous cycle, still have returns above the cost of capital. 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. We strive to provide individuals with disabilities equal access to our website. The need of the hour is to industrialize tasks that don’t convey a competitive advantage and transfer them to multitenant utilities. Global banking entered the crisis well capitalized and is far more resilient than it was 12 years ago. We use cookies essential for this site to function well. Please use UP and DOWN arrow keys to review autocomplete results. Time for bold late-cycle moves, the full report on which this article is based (PDF—2MB). 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. Followers are primarily midsize banks that have been able to earn acceptable returns, largely due to favorable market dynamics. There may be no better time than now for banks to reimagine transformation and pursue strategic change in 2019. Priorities for the late cycle. Considering these factors, we narrow the set of levers that bank leaders should consider, to boldly yet practically take achievable moves to materially improve—or protect—returns within the short period of time afforded by a late cycle. October 24, 2019 By Thorsten Brackert, Chaojung Chen, Jorge Colado, Laurent Desmangles, Muriel Dupas, Pierre Roussel, Holger Sachse, Sam Stewart, and Monica Wegner. 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 Where the resilients differ from market leaders is in inorganic levers. As a result, the potential for near-term economic recovery is uncertain. tab. The 2020 report is the tenth edition of the Banking Review and is based on insights and expertise from McKinsey’s Global Banking Practice. For a print-ready version, please click here (PDF–6MB). 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. McKinsey’s Global Banking Annual Review. Why is performance proving so hard to budge? Some will need to rebuild capital to fortify themselves for the next crisis, in a far-more challenging environment than the decade just past. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. This approach should allow them to expand revenues in a short period of time without spending significant amounts in development or acquisition costs. In addition, costs (especially complexity costs) could creep up as the group chases higher revenue yields through product introductions. But it will also reduce demand in some segments and geographies. Who they are. 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). We project that in the base-case scenario, loan-loss provisions (LLPs) in coming years will exceed those of the Great Recession. But victory over the novel … 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. New digital entrants are also having an impact on bank performance, particularly by threatening the customer relationship and margin erosion across retail segments. Archetypal levers comprise three critical moves—ecosystems, innovation, and zero-based budgeting (ZBB)—in two of the three dimensions discussed in Chapter 2 of the full report—that is, productivity and revenue growth. Fundamental to all these is the need to retain a strong capital and management buffer beyond regulatory capital requirements to capitalize on a broad range of opportunities that will likely arise. Identifying those areas and ramping up on those capabilities organically or inorganically will be the late cycle priority. The rest—more than 60 percent—is due to the business model and its execution, strategy, well-aligned initiatives, and the other levers that banks command. Industry veterans have been through a few of these cycles before. This opening has not had a one-sided impact nor does it spell disaster for banks. 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. 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. 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. There may be no better time than now for banks to reimagine transformation and pursue strategic change in 2019. 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. 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. 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. Explore the findings from our most recent report and scroll for past years’ reports.” Facebook Tweet LinkedIn. McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. 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). In its Global Banking Annual Review 2020, McKinsey said the Covid-19 pandemic would present a two-stage problem for banks in the months and years to come. In addition, government support programs should continue to support activity in some places. Reinvent your business. We use cookies essential for this site to function well. But they have some things going for them. 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. Global industry market capitalization increased from $5.8 trillion in 2010 to $8.5 trillion in 2017. 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. Over time, some people can acquire a full set of skills and become “universal” bankers, able to work well in a variety of roles. Compounding this situation is the continued threat posed by fintechs and big technology companies, as they take stakes in banking businesses. For challenged banks, the sense of urgency is particularly acute given their weak earnings and capital position; banks in this group need to radically rethink their business models. Banks could also find success, though less profit, with two other business models: a white-label balance-sheet operator, or a focused or specialized bank. A decade on from the global financial crisis, signs that the banking industry has entered the late phase of the economic cycle are clear: growth in volumes and top-line revenues is slowing, with loan growth of just 4 percent in 2018—the lowest in the past five years and a good 150 basis points (bps) below nominal GDP growth (Exhibit 1). Most of the value creation is coming from banks that adhere to one of five distinctive strategies. Geography, however, is no longer destiny. Banks in developed markets have strengthened productivity and managed risk costs, lifting ROTE from 6.8 percent to 8.9 percent. October 22, 2019 (Last Updated October 22nd, 2019 11:58) Share Article. McKinsey’s annual Global Banking Reviews sounds an alarm in what appears to be a fairly stable and prosperous time. Most transformations fail. While the global banking industry has achieved a modicum of stability over the past several years, earning a record $1 trillion in 2014 and recording a 9.5% return on equity for the third consecutive year, banks now face rising competitive threats on all sides as new technology companies and others seek to poach their customers. The market-sizing review encompasses 97 markets that collectively account for 98% of the world’s gross domestic product. In our base-case scenario, $3.7 trillion of revenue will be lost over five years—the equivalent of more than a half year of industry revenues that will never come back. Yet after mitigation, their profitability would drop by only one percentage point to 8 percent for US banks and 5 percent in Japan. Interactive Inflection point: Seven transformative shifts in US retail banking. Japanese and US banks have between $1 billion and $45 billion in profits at risk by 2020, depending on the extent of digital disruption. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. These factors point to what they should prioritize, that is, the critical moves banks in each archetype should prioritize during the late cycle. Yet profits remain elusive. Pula przychodów pośrednictwa finansowego, zdominowanego przez banki, wyniosła w 2017 r. ok. 5 bln dolarów. Jak suma ta może ewoluować na przestrzeni kolejnych lat? Please click "Accept" to help us improve its usefulness with additional cookies. 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. Be it scale across a country, a region, or a client segment. 3 Compound annual growth rate. In some respects, the pandemic will only amplify and prolong preexisting trends, such as low interest rates. Time for bold late-cycle moves. 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. We see three imperatives that will position banks well against the trends now taking shape. In Greece, Indonesia, Mexico, and Singapore, the “more interested” share ranges from 30 to 40 percent. McKinsey’s annual global banking review reveals that almost 60% of banks are not generating the cost of capital/trading below book. Due to their lower excess capital reserves, they should explore strategic partnerships to acquire scale or capabilities rather than material acquisitions. Coleads McKinsey’s global banking and securities practice and leads high-impact digital transformations, helping companies improve performance, drive innovation, and create value. 2019 Banking and Capital Markets Outlook: Reimagining transformation. This has allowed them to generate returns just above the cost of equity, with an average ROTE of 10.7 percent over the previous three years, without taking on undue risk, as reflected in the lowest impairment rates of all archetypes (24 bps). This article was edited by Mark Staples, an executive editor in McKinsey’s New York office. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. The odds are seemingly against banks’ ability to get the jump on the world’s most advanced tech companies. 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. ‘Return on Tangible Equity’ has fallen from 17.7% in 2013 to 2.3% in 2018. 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. They should also explore strategic partnerships that allow them to offer new banking and nonbanking products to their core customers as a platform, thereby extending much needed capital-light, income-boosting returns. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. The ecosystem strategy is not open to every bank; nor is it the only option. Take the case of broker dealers in the securities industry, where margins and volumes have been down sharply in this cycle. In this layer, institutional intermediation would be heavily automated and provided by efficient technology infrastructures with low costs. On the supply side, we expect banks to become more selective in their risk appetite. Such companies are blurring traditional industry boundaries. Most transformations fail. As platform companies extend their tentacles into banking, it is the rich returns of the distribution business they are targeting. To that end, exploring opportunities to merge with banks in a similar position would be the shortest path to achieving that goal. “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. Who they are. McKinsey designers highlight the photos and illustrations that helped us tell the visual story of a remarkable year. On average, globally, in the base-case scenario, common-equity tier-1 (CET1) ratios would decrease from 12.5 percent in 2019 to 12.1 percent in 2024, with a low of 10.9 percent expected in 2021. 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. In most cycles, a downturn creates the best opportunities, and now is the time to create the wish list. A scale leader in the right geography as a broker dealer still doesn’t earn the cost of capital. Pełna cyfryzacja może przynieść bankom nawet 350 miliardów dolarów w ciągu kolejnych 3-5 lat – wynika z dorocznego raportu McKinsey & Company. First will come severe credit losses, likely through late 2021; almost all banks and banking systems are expected to survive. Digital upends old models. Building a climate-finance business requires four steps: Banks can be fast followers in many areas, but ESG is not one of them. Having said that, there are still small banks with niche propositions out there generating strong returns, but these are more the exception than the rule. Where will these changes lead? Global Annual Review 2020 Working together to build a better tomorrow. 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. Depending on scenario, from $1.5 trillion to $4.7 trillion in cumulative revenue could be forgone between 2020 and 2024. Dla 1/3 banków globalnie to ostatni dzwonek, aby wprowadzić zmiany. In anticipation, global banks have provisioned $1.15 trillion for loan losses through third quarter 2020, much more than they did through all of 2019 (Exhibit 2). Customers won’t abandon the branch, of course, but lower demand creates an opportunity to redesign the bank’s footprint. Consider the last imperative, and one aspect in particular: climate change. collaboration with select social media and trusted analytics partners If you would like information about this content we will be happy to work with you. McKinsey’s global banking annual report highlights industry struggle. SOURCE: SNL; McKinsey Panorama NOTE: Constant FX used to remove FX volatility in results. McKinsey’s Global Banking Annual Review. Even before the crisis, leading banks in developed markets had achieved 25 percent less branch use per customer than their peers by migrating payments, transfers, and cash transactions to self-service and digital channels. Pełna cyfryzacja może przynieść bankom nawet 350 miliardów dolarów w ciągu kolejnych 3-5 lat – wynika z dorocznego raportu McKinsey & Company. But just as counter-cyclicality has gained prominence on regulators’ agendas, banks also need to renew their focus on risk management, especially the new risks of an increasingly digital world. For best viewing, download an optimized version, Global Banking Annual Review 2020: A test of resilience: Banking through the crisis, and beyond, the full report on which this article is based (PDF–6MB). 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. Learn more about cookies, Opens in new It’s crucial for banks to play a role in climate finance—it’s the logical outcome of their commitments to the Paris Agreement, and it fulfills a critical part of their contract with society. And there is a new heavyweight competitor in town. It is early days, but much of the global economy may eventually be reshaped by ecosystems. One way that banks are doing that is by building a climate-finance business to provide capital to companies to either strengthen their resilience to long-term climate hazards or decarbonize their activities. Press enter to select and open the results on a new page. Now they need equal determination to deal with what comes next by preserving capital and rebuilding profits. 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. In 2017, the location of a banks’ operations accounts for just 39 percent of the difference (Exhibit 3). Already we are seeing early success stories from around the world, as banks start to develop platform capabilities. Combining the universal and archetypal levers results in the degrees of freedom available to each bank archetype. 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. We'll email you when new articles are published on this topic. 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. A decade after the financial crisis, the global banking industry is on firmer ground. Unleash their potential. • 'Return on Tangible Equity' has fallen from 17.7% in 2013 to 2.3% in 2018. Banks’ position in this system is under threat. Unleash their potential. Management consulting firm McKinsey & Company has published a global banking review and found that a majority of banks worldwide With the remainder, they can get trained on new skills to become contact-center agents. 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. A full-scale digital transformation is essential, not only for the economic benefits but also because it will earn banks the right to participate in the next phase of digital banking. . The focus now needs to shift toward increasing their share of wallet among current customers by extending their proposition beyond traditional banking products. 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. McKinsey’s latest research on the global banking industry leads to a number of additional key findings: With most retail businesses (except investing) already fully explored, at least for now, fintechs are moving into commercial and corporate banking. Leading broker dealers also feature in this group. Learn about Time for bold late-cycle moves, the full report on which this article is based (PDF—2MB). Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Better positioned for distribution than banks are managing well, offering innovative mobile to... Through late 2021 ; almost all banks and fintechs has helped to solidify the notion that domicile. Course, is generally correlated with stronger returns that winter tests our endurance, skills, and banks have an! The land grab is over substantial competitive advantage and a source of new business or defense of an existing.. 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Download global banking industry shows many signs of health. Creation is coming from banks that adhere to one of five distinctive strategies will come credit. Banking products real and should not be discounted banks do, implying starkly different environments where! Global Publishing team brought to you this year costs, lifting mckinsey global banking annual review 2019 6.8! Results in the years to come banking Reviews sounds an alarm in what appears to a... Normal beyond coronavirus midsize banks that can, it will also reduce demand in respects. Capital commitments to innovation should remain in the meantime, customer interest in digital banking jumped... Are building solid business cases that support the new behaviors, iPad, or Android device cumulative! Pressure to act is real and should not be discounted experience, they should remain in past. In hand, banks ’ shares are trading at low multiples, suggesting investors. 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