Banks worldwide remain scarred by the 2007-2009 financial crisis and are years away from developing new business models that will produce sustainable profits, according to a new study.
Despite progress in meeting regulators’ requirements to build capital, revenue growth is slow, costs are rising and new competitors exploiting digital technologies are emerging, McKinsey & Co said in a report released on Monday evening.
It prescribes a rigorous mix of cost cutting, business simplification models adapted from the auto industry and image repair that requires fundamental changes in employee culture and respect for societal values.
The challenges are so great, though, that the consultant expects a host of large and small US banks over the next five years to throw in the towel and merge.
A 30-year trend in which national average bank revenue has grown faster than countries’ gross domestic products “is likely now being broken,” the study says.
“In both emerging and developed markets, banking revenues are expected to flatline at around 5% of GDP for the foreseeable future.”