The global banking sector is facing a critical turning point. A new survey shows that, despite the prevailing concerns, the CEOs of leading banks appear confident.
In a recently published analysis, American ratings agency Moody’s outlined bleak prospects for the global banking sector. According to the study, the decline in liquidity in connection with a fraught repayment capacity may negatively affect the quality of loan portfolios in 2024, which in turn will lead to an increase in asset-related risks.
The experts also anticipate that the profitability of the banks will decrease, due to increasing refinancing costs, a slower credit growth, and the increasing need to set aside provisions for anticipated loan defaults.
Focusing on Resilience
A new survey conducted by consulting firm KPMG on global leading banks shows, however, that for the most part, the banks have kept to their growth expectations for 2024. The auditing firm surveyed 142 CEOs of banks in North America, Latin America, Europe and Asia about their concerns, current risks and their approach to strategic planning and management.
Despite the uncertain global economic environment and the shared concerns about the effects of increasing costs of living – on the demand for loans, for instance – the majority of CEOs are confident in terms of their three-year prospects and are concentrating on their resilience and pragmatic growth over the coming years.
A Drop in Confidence
It must be said, however, that the confidence of the CEOs has weakened when compared to the previous year. While trust in the growth prospects of the global economy in the next three years has reduced only slightly from 72 to 70 percent, for instance, trust in the prospects of their own sector has dropped significantly from 84 to 76 percent.
However, although 80 percent of the bosses believe that increasing interest and a sustained inflation policy could prolong a possible recession, almost nine out of ten anticipate positive financial performance (89 percent).
AI: a Driver of Growth
Almost three quarters of the CEOs agree that the technology of generative artificial intelligence (GenAI) represents the most important investment opportunity for their businesses, despite economic uncertainties. Many of them refer to the prospects of higher profitability, better fraud detection and new product and market opportunities.
The CEOs are very optimistic regarding the advantages of GenAI: 74 percent expect that the investments will pay for themselves within five years. 23 percent are even more optimistic and are expecting a return on investment within three years. The executives are nevertheless aware of the challenges as well: more than half speak of the costs of implementation and complex ethical considerations.
Increasing Headwinds
In the face of the mixed economic forecasts, the banks must anticipate headwinds in the next year in terms of the volume of business, the quality of assets and the financing conditions. In general, the banks are on solid ground, but their profit models are to be put to the test.
Their capability of generating returns and managing costs will be tested in a faltering economic environment. However, most banks may continue to benefit from the high interest rates, even if this is not quite to the same extent as in 2022.
