No Match Found
“It could be worse.” Many bank CEOs may have started the year expecting that 2022 would offer appealing results, even if they weren’t as strong as the previous year’s. There were reasons for the cautious optimism: Pandemic restrictions have been winding down; markets are predicting rising interest rates, which have historically driven higher net interest margin1; and PwC analysis shows that loan performance has been trending better than before COVID-19. But now, geopolitical uncertainty in Ukraine and elsewhere has many people reconsidering their promising analysis.
Let’s start with the basics: Historically important factors may not be nearly as important to banks as they once were. Certainly, some financial firms will likely look back on 2022 as the year that their strategy started to fall into place. But for many banks, the current signs of stabilization can mask some serious challenges ahead. This is our look at what’s next in banking and capital markets: the trends and the current industry landscape, the platforms that leaders can use to help drive growth and some strategic choices that may lie ahead.
After a challenging 2020, when many banks tightened lending in response to shutdowns and job losses across the US economy, 2021 turned out to be more favorable. Thanks to government stimulus programs and better-than-expected credit performance, many firms rebounded, and bank ETFs outperformed the broader market. PwC analysis shows that larger banks with diversified revenue sources — including mortgage lending and banks with active capital markets or wealth management businesses — did particularly well. But it may be tougher to repeat that performance in the year ahead as the market evolves, causing some high-performing product categories to face new headwinds.
In 2022, with GDP expected to slow2, US banks are looking at a low-to-moderate growth outlook. The recent pick-up in loan growth may not be sustainable, fintech firms are edging deeper into the banking landscape, and customer expectations are being reshaped in ways that legacy firms may have trouble matching. The verdict is still out on whether pursuing M&A for scale can deliver the same ROI as acquisitions that address a specific strategic purpose. Deposits have grown, but this may reflect monetary policy and temporary shifts in consumer and business behavior more than anything banks have done. Finally, the combination of growing inflation and supply chain issues can put increased expense pressures on banks and their customers.
The bottom line:
Banks know they’re facing macroeconomic pressures, squeezed between fintechs and some megaplayers. Many will likely miss growth opportunities because complex strategies have them trying to fight multiple fires at once. But some banks with truly differentiated offerings are taking deposit market share from peers, growing top- and bottom-line growth faster than their competitors and being rewarded by investors (e.g., market-leading tangible book value per share).
These banks are developing and implementing an end-to-end strategy with a clear idea of exactly who they want to serve, and why. Some are also willing to explore divestitures if it will let them double-down on that strategy. They are moving from a product-first to a customer-first experience, drawing on modern technology to help meet client expectations. And they are working to enhance trust with employees, regulators, investors and other stakeholders by keeping pace with changing rules and societal values.
While the banking and capital markets sector is more complicated than ever, there are still opportunities for firms of all sizes. Here’s our view of what’s next in banking and capital markets, and how you can use these forces to help shape your own growth story in 2022.
The factors we’ve highlighted in this year’s report — transformation, ESG, deals, regulation and cloud technology — can pose some of the biggest opportunities for growth in the coming year, as well as some of the biggest challenges. However, these opportunities will need to be managed carefully. The market continues to evaluate how to manage the complexities of rising compensation costs, tax strategies, talent acquisition and retention, geopolitical uncertainty, global tax changes, cyber risks and macroeconomic volatility as the pandemic evolves. While not all new, these are among the top banking industry concerns, and they’re reflected in PwC’s 2022 CEO Survey.
While 2022 could be a challenging environment for many, virtually any bank, regardless of size or geography, can benefit from sharpening its focus in these five areas:
Use digital transformation tools to give your customers what they value most.
Build trust and prepare for new growth opportunities tied to ESG principles.
Look at value creation strategies to identify strategic deals at fair prices.
Retune your processes to adapt to a changing environment for regulation.
Jump ahead with a cloud strategy that can help you do more, more quickly.
There are plenty of opportunities to execute a targeted growth strategy in 2022. We’re here to help. Let’s talk.
1 Terris, Harry and Khole, Rucha. “Big US banks poised for guidance reset in Q4'21 reports after rates increase,” SNL Financial Extra, January 12, 2022, accessed on Factiva on March 4, 2022.
2 Dougherty, Danny and Barnett, Andrew. “Consumer Pessimism Grows as Inflation Accelerates; U.S. consumer spending is now being tested by Omicron's persistence, waning fiscal stimulus, inflation and stock-market volatility,” The Wall Street Journal Online, February 1, 2022, accessed on Factiva on March 4, 2022.
3 Vanderford, Richard. “Big Banks Band Together to Measure and Manage Climate Risk; A consortium of 19 banks will develop standards to integrate climate risk management throughout their operations,” The Wall Street Journal Online, January 12, 2022, accessed on Factiva on March 4, 2022.
4 Crosman, Penny. “Banks form consortium to mint USDF stablecoins,” American Banker, January 13, 2022, accessed on Factiva on March 4, 2022.
PwC Banking and Capital Markets Consulting Solutions Leader, PwC US
Banking and Capital Markets Trust Solutions Leader, PwC US