2019_Banking_Industry_Outlook_40页_2mb

2019 Banking and Capital Markets Outlook Summary

Core Content

The global banking industry has shown significant recovery and resilience over the past decade, with increased profitability, stronger capital ratios, and a more robust financial system. However, this recovery has not been uniform across regions, with the US banking sector leading in many areas, while European banks continue to face challenges due to structural issues and regulatory fragmentation. Asian banks, particularly in China, have emerged as strong contenders, driven by rapid growth and a focus on innovation.

Main Areas of Focus

1. Regulation: A New Era of Global Divergence

• Regulatory changes are becoming more fragmented globally, with countries moving away from post-crisis synchronization.
• United States:
  • The Economic Growth, Regulatory Relief, and Consumer Protection Act has relaxed some regulations, especially for banks with assets between $50 billion and $100 billion.
  • The Volcker Rule is still under review, with proposed changes to reduce its scope and simplify compliance.
  • The Community Reinvestment Act (CRA) may be revised, potentially affecting banks' strategies for affordable housing projects.
• Europe:
  • GDPR continues to shape privacy and data ownership policies.
  • MiFID II is driving fee transparency, while PSD2 is fostering innovation in payments.
  • The European Commission is working on a single regulatory rulebook and banking union, but faces challenges due to evolving global standards.
• United Kingdom:
  • Uncertainty remains due to Brexit, with many banks preparing for potential no-deal scenarios.
  • The FCA is promoting a Global Financial Innovation Network (GFIN) to support fintech innovation.
• Asia-Pacific (APAC):
  • China has taken steps to merge banking and insurance regulators, aiming to improve financial system oversight.
  • Malaysia and India have introduced frameworks to enhance conduct and resolution planning.
  • Singapore and Japan are exploring regulatory sandboxes and overhauls to adapt to fintech growth.

2. Tax: Strategic Recalibration in the New Equilibrium

• US Tax Cuts and Jobs Act has had a major impact on banking profitability, with a notable increase in net income.
• Tax provisions like FDII, GILTI, and BEAT are reshaping how banks manage their operations and investments.
• Global tax reforms are likely to affect competitiveness, with some countries like Spain and Australia reconsidering their tax policies.
• Banks need to reassess their operating models, especially in terms of onshore vs. offshore strategies, and invest in data modeling tools to adapt to new tax realities.

3. Technology: Creating a Symphonic Enterprise

• The banking industry is transitioning to a "symphonic enterprise", where different technologies work in harmony to deliver value.
• Key priorities in 2019 include:
  • Data management to extract maximum value from technology investments.
  • Core system modernization to support digital transformation.
  • Adoption of AI for intelligent insights and cloud migration for scalability and agility.
• Challenges:
  • Data is often siloed and fragmented, complicating risk management and customer service.
  • Legacy systems are being replaced or modernized through microservices and cloud applications.
  • Security concerns and concentration risks are important considerations when moving to the cloud.

4. Talent: Preparing for the Future of Work

• The future of work is marked by automation, the gig economy, and demographic shifts.
• Banks must embrace scalable learning and redefine work environments to foster innovation and employee engagement.
• Skills such as designing superior customer experiences and managing change are becoming more valuable than traditional industry knowledge.
• Collaboration with fintechs and bigtechs is essential, and cross-functional teams will play a key role in future success.

Risk and Privacy

1. Risk: Strengthening the Core with New-Age Defenses

• Risk management is evolving with the rise of digitization, automation, and externalization.
• Emerging risks include algorithmic risk, cyber threats, and geopolitical challenges.
• Banks need to adopt a strategic approach to risk, including:
  • Reassessing roles of the first and second lines of defense.
  • Implementing smarter risk identification through better analytics and deep learning.
  • Enhancing cyber defenses with a focus on resilient infrastructure and systemic disruption preparedness.

2. Privacy: In a Post-GDPR World

• GDPR and data privacy laws like California's Consumer Privacy Act are driving changes in how banks handle customer data.
• Privacy compliance is a long-term challenge, requiring holistic approaches rather than just policy updates.
• Use of alternative data and AI is making privacy more complex, necessitating new strategies to balance innovation with data protection.

Business Segments

1. Retail Banking: The Digital Leadership Race

• Net interest margins (NIM) and loan growth have improved due to favorable economic conditions.
• Fintechs and nonbanks are increasing their influence, especially in online lending.
• Open banking in Europe, driven by PSD2, is fostering innovation and competition.
• Digital transformation is a key driver for customer experience and operational efficiency.

2. Corporate Banking: Digitization and Credit Discipline

• Digitization is transforming corporate banking, with a focus on credit discipline and data-driven decision-making.
• Banks are increasingly leveraging data analytics to assess credit risk and improve lending practices.

3. Transaction Banking: Modernizing Operations

• Modernization of transaction banking is centered on client experience and operational efficiency.
• Technology integration is key to streamlining processes and enhancing customer satisfaction.

4. Investment Banking: New Engagement Models

• New client engagement models are emerging, with a focus on ecosystem orchestration.
• Collaboration with fintechs and bigtechs is becoming more common, and digital innovation is reshaping traditional models.

5. Payments: Diversifying Growth and Enhancing Security

• Payments are a critical area for growth diversification and security enhancement.
• Regulatory changes are pushing for transparency and competition, while security concerns remain a priority.

6. Wealth Management: Balancing Growth with Transparency

• Wealth management is facing a need to balance growth with product rationalization and transparency.
• Customer-centric approaches and data-driven insights are becoming more important to meet evolving expectations.

7. Market Infrastructure: Leveraging Data and Technology

• Market infrastructure is being transformed through data and technology.
• The focus is on competitive growth and operational efficiency, with data analytics playing a central role in decision-making.

Conclusion

The banking industry is at a pivotal moment, with regulatory divergence, technological innovation, and changing economic conditions shaping its future. Banks must reimagine transformation as a strategic, multiyear process, focusing on customer needs, data integration, and operational resilience. Talent development and privacy management are also crucial to navigating the evolving landscape. As the world becomes more volatile and interconnected, the ability to adapt and innovate will determine the success of banks in the coming years.