Banking & capital markets

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of banking and capital markets CEOs are changing their strategies for customer growth, loyalty and retention while continued concern about regulation continues.

Upbeat outlook

Banking and capital markets CEOs are confident about their companies’ prospects – nearly 90% are looking ahead to an increase in revenue growth over the next year.

But success is going to be hard won as the industry faces the headwinds of a challenging global economy, low interest rates, higher capital demands, increasing regulatory constraints on business and lower rewards with which to attract talent.

BCM CEOs shift talent strategies and step up investment in technology as they strive to build market share

Winning over customers
Half of banking and capital market CEOs are concerned about shifts in consumer spending and behaviour, though these developments offer opportunities for nimble and innovative players. Nearly 90% of industry leaders are planning to change their strategies for customer growth, loyalty and retention, with more than 30% anticipating a major change. Strengthening the customer base and improving customer service are both in the top three investment priorities.

Developments in technology are changing how products are designed and distributed and could open the door to new entrants. Nearly three-quarters of banking and capital markets CEOs are planning to increase investment in technology and more than two-thirds strengthen their capacity for innovation, though less than 30% are concerned about the threat from new entrants.

More than half of banking and capital markets CEOs see lack of trust in the industry as a barrier to growth. Nearly 90% are looking to change the way they engage with customers. In line with this, more than 60% are developing a framework to support a culture of ethical behaviour. Increased engagement with users of social media (75%) is noticeably higher than traditional media (58%), reflecting new strategies for interaction, engagement and influence.

Eurozone fears recede
Recession in the US has supplanted the break-up of the Eurozone as the most threatening economic scenario perhaps because of the fiscal cliff debate in the US. Seventy per cent of industry leaders say that recession in the US would have a damaging impact on their business, and a significant 34% believe it is now likely. Just over 60% say that a break-up in the Eurozone would have a negative impact, but only 19% believe it is now likely.

Improving operational effectiveness
When growth was surging, a huge amount of operational capabilities were bolted on in a hurry, creating overly complex and expensive operating structures. This is now a good juncture to rationalise these structures as organisations look to cut costs, enhance efficiency, and simplify while also strengthening operational oversight.

Improving operational effectiveness is a top three investment priority for 58% of banking and capital markets CEOs. More than 60% are planning a cost reduction initiative over next 12 months and more than 70% anticipate a change in their organisational structure.

Attracting talent when rewards are down
More than half of banking and capital markets CEOs continue to see the availability of key skills as a threat to growth, though less than a quarter are planning to invest in filling talent gaps.

Nearly 70% of industry leaders are striving to match pay of peers to retain top talent. But as returns continue to come under pressure and regulators press for inclusion of risk mitigants, the traditional compensation model may need to be rethought.

Government influence
Ninety-five per cent of banking and capital markets CEOs continue to say that governments and regulators influence their strategy, almost as many as customers (97%). This is reflected in concerns over excessive regulation (81% seeing this as a threat to growth), protectionist tendencies of national governments (50% seeing this as a threat), the tax burden (59% seeing this as a threat) and government response to debt and fiscal burden (67% seeing this as a threat). Industry leaders are continuing to strengthen engagement with government and regulators (77%).

On the front foot
There is advantage to be had by banks that actively manage these challenges. Proactively managing regulatory challenges, non-performing assets or businesses, and adapting to changing technologies and customer expectations will create a much stronger position than those that simply seek to muddle through in anticipation of better times ahead.

The organisations on the competitive front foot are:

  • Exiting underperforming businesses and assets
  • Simplifying operations and identifying opportunities for competitive advantage
  • Looking at regulation in the round to manage cost and strategic impact more effectively
  • Improving customer transparency while sharpening customer targeting and cross-sale opportunities
  • Taking advantage of changing technologies to improve customer service, lower costs and increase speed to market

CEO interview quotes

"I think the level of external threats has increased with every passing decade. And as the pace of change has increased, organisations like ours have to be a lot more flexible than we might have been in the past."

Shikha Sharma
Managing Director and CEO of Axis Bank Limited

"We commercial banks are service institutions, so changes in customer demands are extremely important for us. Just as a chef in a restaurant will lose his job if his cooking cannot satisfy his customers, a service institution will not exist if it has no customers."

Dr. Weihua Ma
President and CEO of China Merchants Bank Co. Ltd

"I prefer a management style based on openness and co-operation at every level; one that does not necessarily obey or respect hierarchy at all times. I believe in leadership that can stay flexible."

Sándor Csányi
Chairman and CEO of OTP Bank Plc.

"I think the Asian financial system learned from the 1998 crisis. Therefore, in terms of capital and liquidity, the starting position of Asia’s financial system is perhaps stronger than the systems in the West."

Piyush Gupta
CEO and Director of DBS Group

"In Russia itself in the early years of this century, people feared that foreign banks would come in and leave nothing for the rest. Then, after the crisis, everybody thought the government-controlled banks would absorb everything to leave nothing for the private banks. But the reverse happened. Competition will grow under any scenario."

Artem Konstandyan
CEO of Promsvyazbank (PBS)

"Besides focused growth we definitely need to keep our costs under control, because we believe that banking will be a tough environment to operate in. And we need to preserve our capital position or even increase the capital that we employ in our business."

Martin Blessing
Chairman of the Board of Managing Directors of Commerzbank AG

"Our most important goal is to try to capture growth where growth exists. And for the most part, growth is to be found in the emerging markets. However, the problem for us is that our investing history and legacy is largely associated with Nordic-based public companies and most of our assets and employees are in Europe. It takes time to move the gravity of a company from one continent to others."

Anders Nyren
President and CEO of Industrivärden AB
These interviews contain the opinions and views of the CEOs interviewed, and do not necessarily represent the opinions and views of PwC.


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