The triple transformation achieving a sustainable business model

2,392 views

Published on

The Triple Transformation Achieving a sustainable business model (by. Mc Kinsey)

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
2,392
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
30
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

The triple transformation achieving a sustainable business model

  1. 1. Financial Institutions GroupThe triple transformationAchieving a sustainable business model2nd McKinsey Annual Review on the banking industryOctober 2012
  2. 2. The triple transformationAchieving a sustainable business model Contents Executive summary 1 Introduction 7 Chapter 1: More capital, but not yet a sustainable model 9 Chapter 2: Earnings headwinds may increase 21 Chapter 3: The triple transformation 31 Summary and reflection 41 Appendix 42
  3. 3. The triple transformationAchieving a sustainable business model 1Executive summaryWelcome to the second edition of the McKinsey 1. More capital, but not yet a sustainable modelAnnual Review on the banking industry. ƒƒ Substantial increase in capital base.The global banking sector has made some pro­ Banks have made significant efforts in thegress over the past year towards stabilizing after re­cent period to stabilize their balance sheets,the financial crisis. Banks have launched nu­mer­ lifting average Tier 1 ratios to 11.7 percent inous initiatives to improve capital efficiency, reve­ 2011, compared with 11.4 percent in 2010 andnues, and costs. However, the impact was not 8.2 percent in 2007.reflected in 2011 earnings, due to the com­bined —— Since 2007, the Tier 1 capital of the sectorimpact of low interest rates and tightening capital increased by $2.0 trillion, a rise of 57 per­re­quire­ments. Further, the sector faces some cent. In the same period, as­sets grew bydifficult choices going forward as it strives to 25 percent ($17 trillion) leading to lowerim­prove per­for­mance and regain the con­fidence levels of leverage. In 2011 those trendsof in­vestors and society. Amid tighter regulation, continued, but at a slower pace.shifting cus­tomer dynamics and macrovolatility, —— Portfolio risk positions and managementthe search for a sustainable model goes on. In of risk-weighted assets (RWAs) improved.this report we examine the current state of the RWAs increased less than total assets.sector, and pre­sent our view of the changes nec­ —— Banks have since 2007 increased de­pos­essary to re­store banks to the health and vigor its by an impressive $17 trillion (32 per­they are ca­pa­ble of achieving. cent), driving a four-year trend of declining loan-to-deposit ratios, which averagedThe report is presented in three chapters: 85 per­cent in 2011, compared with 97 per­ cent in 2007.ƒƒ Chapter 1 presents our view of the status of the sector five years after the beginning of ƒƒ Despite efforts, performance has de­te­ri­ the financial crisis. While progress has been o­rated. In last year’s global banking sector made, challenges remain. report1, we discussed the need to improve along three vectors – capital efficiency, reve­ƒƒ Chapter 2 examines the outlook for banking. nues, and costs. While banks made efforts We expect the tough environment to persist, across all three vectors over the past year, the with medium-term risks to performance out­ changes were not reflected in profitabi­li­ty. That weighing positives. is partly because of the challenging macroeco­ nomic environment, which offset the positiveƒƒ Chapter 3 presents our vision of the way for­ effect of banks’ initiatives. A full performance ward. A focus on return on equity (ROE) is transformation may take several years. ne­ces­sary, but not sufficient, and we suggest —— Capital efficiency deteriorated slightly. a “triple trans­formation” may be required, No­ta­bly, the ratio of off-balance-sheet to around bank­ing economics, business models, on-balance-sheet financing decreased, as and cul­ture. the ratio of securitized loans and non­fi­nan­ cial corporate bonds dropped by 1 per­ cen­tage point to 29 percent.1 McKinsey Annual Review on the banking industry, September 2011
  4. 4. 2 —— Revenue growth lost momentum. Global book risks. Southern European banks revenues grew by just 3 percent last year to remain reli­ant on the drip feed of ECB $3.4 trillion, compared with 9 percent from and emer­gency funding. 2009 to 2010, as recovery of risk costs □□ There was little progress on earnings. declined and revenue margins deterio­ In Western Europe, revenues declined rated on average by 11 basis points. by 1 percent, and remain 16 percent —— Cost-to-income ratios rose while cost- below precrisis levels. Costs mean­ to-asset ratios were stable. The sector’s while rose. European banks on average cost base in 2011 jumped 5 percent to earned a ROE of zero percent (5 per­ $2.5 trillion. cent exclu­ding the troubled peripheral countries). ƒƒ Many banks did not earn their cost of —— Emerging Asia2: continued growth – equity. Global banking ROE fell by 0.8 percen­ though slower and more volatile tage points to 7.6 percent in 2011, well below □□ Emerging Asian banks have main­ the 10 to 12 percent average cost of equity. tained sound capital and stability Average earnings fell by 2 percent. ratios and will to account for more than 39 percent of global revenue growth. ƒƒ Three regional variations on a theme – ­little However, average ROE may drop by progress towards a sustainable model in 3 to 4 percentage points from the cur­ the US and Europe, while Asian growth rent 17 percent because of increased will be more volatile. regulatory demands in some markets, —— US: a tough road ahead as well as declines in asset quality and □□ US banks improved balance sheet shifts in consumer dynamics. po­sitions, largely driven by regulation. □□ Emerging Asian banks in the past year Average Tier 1 ratios were 12.7 percent lifted Tier 1 ratios by 0.2 percentage in 2011, compared with 7.5 percent in points to 10 percent (slightly below the 2007, while RWAs fell by 2 percent. global average). However, this may □□ Still, moderate revenue growth, declin­ not be sufficient in the medium term ing margins and increased costs (cost- given the need for growth capital, with to-income ratio of 68 percent versus emerging Asian banks estimated to 60 percent in 2010) suggest US banks require more than $1 trillion in new cap­ face significant challenges to long-term i­tal through the coming decade. With profitability. US banks earned an aver­ down­ward pressure on ROE and over age ROE of 7 percent in 2011. 75 percent government ownership —— Europe: significant risks and distortions (and governments likely to limit capital □□ Despite an increase in average Tier 1 in­jec­tions in this environment), attracting capital of 0.4 percentage points to private capital will become a priority 11.7 per­cent last year, risk in the Euro­ within two to three years. This could pean bank­ing system has increased. necessitate another round of business Lever­age remains high, and many model inno­vation to bolster ROEs and Euro­pean banks have yet to realize loan policy action in some markets. 2 Excluding Japan and Australia
  5. 5. The triple transformationAchieving a sustainable business model 3 □□ China faces some specific challenges. banking, a wave of consumer protec­ Increased bad loans (mainly to local tion rules is being implemented globally. gov­ern­ments and SME) and slower In addition, the pen­dulum is swinging eco­no­mic growth expec­tations of towards more regulation, driven by recent about 8 per­cent give rise to concerns. events such as the LIBOR fixing scandal In ad­di­tion, China needs to manage the and the widespread loss of faith in the smooth transition from a heavily direct­ sector’s conduct. ed growth model to a more market- The impact of regulation on bank profit­ driven economy. ability will be significant. In retail banking in Europe’s largest economies we esti­ƒƒ Investor confidence remains low – reduced mate that 2010 ROE would have been expectations of a quick recovery. Although 6 percent instead of 10 percent if all the regional differences are significant, investor regulation in the pipeline was already confidence in the banking sector fell globally, applied. In capital markets globally, we suggesting doubts over the sustainability of estimate that 2010 ROE would have been business models. 7 percent instead of 20 percent under the —— The average price of insurance against same cir­cum­stances. The risk of overreg­ default in the credit default swap mar­ ulation has increased. It will become more ket of 124 banks sampled exceeded challenging for banks to raise capital and 370 basis points in the past year, the high­ funding which is sufficient to meet both est level on record. new regulatory requirements and support —— At mid-2012, bank stock market valu­ lending growth. ations were at very low levels, with an —— Customer and technology revolutions average price-to-book ratio of 0.8 in have accelerated. Innovative tech­no­ developed mar­kets and 1.5 in emerg­ lo­gies are changing the way customers ing markets, com­pared with 1.0 and 1.9 inter­act and businesses operate. They respectively in 2010. Some two-thirds fundamentally challenge traditional busi­ of banks in developed markets and over ness models and open entry points for 40 percent in emerg­ing markets traded technology-based competitors. New below book value. tech­no­logies means switching banks —— Price-to-earnings ratios averaged 11 last has never been easier for customers – a year, compared with 15 in 2007. dangerous proposition given current high levels of distrust. On the other hand, smart incumbents will understand how2. Earnings headwinds may increase to leverage technology to increase cus­ tomer loyalty.ƒƒ Challenges more daunting than expected —— Macroeconomic volatility adds to —— Regulation has become more complex gloom. Global deleveraging will persist for and burdensome. At the heart of the years, and may be exacerbated by medium- reforms are new rules for capital, liquid­ term macroeconomic risks. ity, funding, and OTC derivatives. In retail
  6. 6. 4 ƒƒ A trend-break in sector growth. For the —— Interest rate recovery – a call option past three decades, the regulated global for deposit-rich or transaction-heavy bank­ing sector grew faster than under­lying banks. Interest rate recovery could boost na­tion­al economies. This trend has come margins. Our simulations show that a to a halt. Banking penetration3 in North 100 basis point increase in underlying rates America fell to 6.3 percent in 2011, from a would boost ROE by 1 percentage point in high of 7.8 percent in 2007, and is not expect­ the US and 0.6 percentage points in Europe. ed to reach precrisis levels before 2020. In The benefit is greater in the United States Western Europe and emerging markets, because interest rates and loan-to-deposit banking penetration is expected to remain ratios are currently lower than in Europe, flat around the current rates of 4.5 per­cent creating a relative advantage in any rise. and 4.9 per­cent respectively. —— Structural repricing – if banks continue Still, fundamental demand trends remain to earn returns below their cost of equity, intact, fueled by the natural financing needs investors will be reluctant to commit sig­ni­ of expanding economies. Rising global infra­ fi­cantly more capital. Lending capacity will structure investment, growing international grow more slowly than demand and result trade and the needs of ageing populations in structural repricing, if not delayed by may constitute a base on which to build profit­ market structure interventions. ability in the longer term. ƒƒ State aid postponing a shake-out. One key ƒƒ What is the size of the performance chal­ reason why many underperforming business­ lenge? We simulated an unmanaged sce­nario es have remained in the market is the $1.7 tril­ for Europe and the United States: in order lion in direct support (capital injections, assets to achieve 12 percent ROE, cost-to-income purchases and state lend­ing) injected into the ratios would be required to drop to 46 percent global banking system. in Europe, from an average of 68 percent in 2011 and to 51 percent in the United States, from 68 percent. Banks have already initiated 3. The triple transformation var­i­ous mitigating actions. The magnitude of this challenge, however, highlights the need For many banks in crisis hotspots such as pe­riph­ for a fundamental transformation. eral Europe, immediate survival will remain the pre­dominant focus – with the priority being to ƒƒ What might boost earnings? In the medium secure funding, replenish capital and restructure term, two potential developments could give assets. The sector as a whole, however, must look earnings a boost: interest rate recovery and beyond survival and plan for the future. sector repricing. Still, those changes by them­ In light of the challenges we have discussed, selves are unlikely to return ROE to accept­ waiting for cyclical change may not be sufficient. able levels. Banks should aim high, fundamentally trans­for­ ming their economics, business models, and cul­ture – what we call a “triple transformation.” 3 Defined as revenue after risk cost to nominal GDP
  7. 7. The triple transformationAchieving a sustainable business model 5ƒƒ Accelerate economic transformation. □□ In developed markets, the main chal­ Executives must make a determined effort to lenges in retail banking are widely improve financial metrics. recog­nized: decreasing customer —— Capital efficiency – significant room for loyalty, technology-based nonbank improvement. Banks must review loan compe­tition, regulation, and a tough books, enhance risk models and improve macro­economic situation. However, collateral management. In addition, they most banks have opted to pursue a must implement structural changes, for defensive adjustment path. example by shifting financing off balance □□ Payments are serving as the entry sheet. This is particularly true for European point for technology-based new banks, which in 2011 had far lower ratios players. The ecosystem of alterna­ of securitized loans and corporate bonds tive financial services is expanding to total financing volumes (19 percent) than fast and game-changing moves are US players (64 percent). increasingly pos­sible, exploiting the —— Revenues – finding pockets of growth. gap between cus­tomer satisfac­ Banks must go beyond traditional levers tion and incumbent’s performance. and search for drivers of structural growth. Alibaba and Rakuten in Asia, or Mint Growth is becoming more granular (sig­ and Simple in the US are examples nifi­cant variations between similar coun­ of new models for financial services tries on a product-by-product basis; players. select macrotrends, such as urbaniza­ —— Corporate banking – finding growth tion, affecting certain regions dispropor­ amid tighter lending tionally) and banks must identify and mine □□ Corporate banking revenues after risk indi­vidual areas of expertise. Smarter costs grew by 2 percent to $580 billion pricing and transformation are key levers in 2011, representing a share of total for revenue growth. revenues of 17 percent. —— Costs – an irrefutable case for indus­ □□ Corporate banking has been less triali­zation. Banks need to embrace the impact­ed by regulation and has seen changes already seen in other industries, some repricing. However, the focus of such as automotive, including business corporate lending is shifting because sim­pli­fi­cation, streamlined operating mod­ banks no longer enjoy structurally lower els, and lean process optimization. funding costs than many of their large corporate clients. Leading banks areƒƒ Drive business model transformation as responding by expanding their product basis for future growth. Many banks require range and cross-selling. a fundamental transformation of business —— Capital markets – walking the line models. □□ Revenues from capital markets —— Retail and private banking – game- de­creased by 17 percent last year, changing moves expected ac­count­ing for just 7 percent of reve­ □□ Revenues from private clients (including nues, well below the 2009 peak of wealth management) grew by 6 percent 12 per­cent. Capital markets is the to $1.8 trillion in 2011, accounting for most challenged segment, due to 53 percent of the global sector revenue regu­latory pressure, higher funding pool, compared with 52 percent in 2010. costs, and shrinking revenues.
  8. 8. 6 □□ Massive cost cutting is necessary, ƒƒ Embrace cultural transformation to sup­ along­side a review of product offerings port and enhance value creation. Banks, and trading activities. Leading banks rightly or wrongly, are widely viewed as primar­ are already making substantial pro­ ily responsible for the troubled state of many gress on a range of metrics. economies. Recent scandals have pushed □□ Fundamental cultural change has their reputations to new lows4 and caused some begun, for example through the re­de­ stakeholders to question the underlying culture fi­nition of customer value and adjust­ and values of banks. Banks should view cul­ ment of compensation models. tural transformation as a strategic issue, not a □□ Undifferentiated business models will be public relations problem. They should examine reconfigured based on three core capa­ their cultures carefully across four dimensions bilities – risk-driven, customer-centric to ensure they are fostering value creation: bal­ and infrastructure-driven; each of these ancing the interests of shareholders and soci­ have specific regulatory ­exposures, ety as a whole, creating value for customers, op­er­ating models, and ­economics. ­ ensuring the soundness of internal processes, —— Adjustment to institutional models. and influencing the mindset of employees. This Three priorities emerge: taking advan­tage will not only increase safety and soundness, of growth markets, reassessing the ben­ but will restore public trust, spur customer-ori­ efits and challenges of size, and cleaning ented innovation, and form a strong foundation up portfolios. for long-term sustainable growth. 4 2012 Edelman Trust Barometer
  9. 9. The triple transformationAchieving a sustainable business model 7IntroductionNearly half a decade after the start of the global than expected. However, there are also some rea­financial crisis, the banking system remains sons for opti­mism, and in this report we hope tounder pressure, amid a combination of regu­ provide a compass that may help banking institu­lation, technological change, and macrovolatility. tions chart a course away from the damage of theWhile banks have improved the health of their recent past, and towards a new future. We buildbalance sheets, they are still some way from our case on the need for a “triple transformation”achieving a model capable of producing robust of economics, business models, and culture. Asand sustainable returns. Banks face a multi­ we consider how the shape of the banking sectortude of structural challenges, many of which may evolve, we take time to examine the indi­vi­are unlikely to dissipate any time soon, while dual parts of the business, from retail to corpo­revenues are still below precrisis levels. Banks in rate banking and capital markets.developed markets are failing on average to earntheir cost of equity. On the key metrics of capi­ For those executives interested in sharing theirtal efficiency, revenues, and costs, much work thoughts on the future of banking, we welcomeremains to be done. your feedback and comments.More than two-thirds of the listed banking sector Finally, we hope this second edition of ourin developed markets now trades significantly annual banking report provides readers withbelow book value – a sign of investor concern the insight and inspiration that we gained inthat the challenges faced by banks may be larger producing it.
  10. 10. 8
  11. 11. The triple transformationAchieving a sustainable business model 9 Chapter 1 More capital, but not yet a sustainable model
  12. 12. 10 1. More capital, but not yet a sustainable model Substantial increase in capital base Banks have since 2007 grown deposits by $17 trillion (32 percent), driving a four-year trend Banks around the world have made significant of declining loan-to-deposit ratios, which aver­ efforts in the recent period to stabilize their bal­ aged 85 percent in 2011, compared with 86 per­ ance sheets. On a global basis, banks lifted Tier 1 cent in 2010 and 97 percent in 2007. ratios to 11.7 percent in 2011, compared with 11.4 per­cent in 2010 and 8.2 percent in 2007. Stronger average balance sheet positions would seem to suggest the banking sector is on a more Since 2007, Tier 1 capital of the industry has grown robust footing. While this is the case on a sec­ by $2.0 trillion, or 57 percent (Exhibit 1). In the tor level, with many banks posting higher levels same period, assets grew by 25 percent ($17 tril­ of Tier 1 capital in 2011, a large number posted lion). The leverage of the global banking system Tier 1 declines, and some of these were as much has also dropped (asset-to-equity ratios declined as 300 basis points. to 17, in 2011 from 21 in 2007) (Exhibit 2). Over the past year these trends continued, but at a reduced pace. Despite efforts, performance has deteriorated Between 2007 and 2011, the proportion of RWAs In last year’s global banking sector report, we to total assets on bank balance sheets declined discussed the need to improve along three vec­ by 1 percentage point. tors – capital efficiency, revenues, and costs. Despite efforts over the past year, 2011 profit­ Exhibit 1 Tier 1 capital has sharply increased across all regions since ESTIMATE 2007 lifting Tier 1 ratio to 11.7 percent globally Other US Emerging Asia Western Europe Tier 1 capital1 Change Tier 1 ratio USD trillions 2007 - 2011 2007 2011 6.0 5.5 57% 8.2% 11.7% 5.0 8.6% 11.8% 4.5 58% 4.0 10.0% 10.0% 3.5 132% 3.0 69% 7.5% 12.7% 2.5 2.0 1.5 1.0 37% 8.0% 11.7% 0.5 0 2007 08 09 10 2011 1 Upscale estimate, aggregation of all listed banks with available data in Reuters plus a 10% buffer for nonlisted banks SOURCE: Thomson Reuters; McKinsey Global Banking Pools
  13. 13. The triple transformationAchieving a sustainable business model 11ability did not evidence significant progress 3 per­cent (in constant ex­change rate terms),against those metrics, suggesting the perfor­ compared with 9 percent in 2010.mance trans­formation will take several years(Exhibit 3). Revenue margins deteriorated on average by 11 basis points to 3.1 percent from 2010 toƒƒ Capital efficiency: slight deterioration. 2011. Only Asian banks were able to improve Capital efficiency deteriorated slightly. Not­ margins, by 16 basis points on average, ably, the ratio of off-balance-sheet to on- whereas US and Western European banks balance-sheet financing decreased, as ratio saw average margin declines of 48 basis of securitized loans and nonfinancial corpo­ points and 12 basis points respectively. rate bonds dropped by 1 percent­age point to 29 percent. ƒƒ Costs: few efficiency improvements. For the sector as a whole, there was no aver­ƒƒ Revenues: no convincing growth story. age operating cost improvement last year, Amid signs of the post-crisis rebound run­ with cost-to-income ratios increasing (60 ning out of steam, there was no convincing percent in 2011 versus 58 percent in 2010 reve­nue growth story. Recovery of risk costs and 60 percent in 2007), while cost-to-asset slowed down, removing a key driver of profit­­ ratios improved slightly (1.8 percent in 2011 ability in 2010. Revenues after risk costs versus 1.9 percent in 2010 and 1.8 percent in last year reached $3.4 trillion (Exhibit 4). 2007) (Exhibit 5). However, revenue growth in 2011 was justExhibit 2 Since the start of the financial crisis banks have focused on balance sheet management and have achieved significant deleveraging ESTIMATE Total banking assets to equity, multiple 35x 25x 24x Western Europe +3% 22x 21x 21x -21% 20x 18x 17x Global average Emerging Asia1 15x 16x 10x US 2000 01 02 03 04 05 06 07 08 09 10 2011 1 Without Japan and Australia SOURCE: Thomson Reuters; McKinsey Global Banking Pools
  14. 14. 12 The sector’s cost base increased by 5 per­ half of its peak value before the financial crisis cent to $2.5 trillion last year. Before the finan­ (Exhibit 6). cial crisis it was $2.3 trillion. A turnaround is not in sight, with recent profit growth achieved largely on recovering loan loss Many banks did not earn their cost of equity provisions, an engine that is fast running out of steam. In 2010 loan loss provision recoveries The lack of performance improvement and accounted for 26 percent of annual profits. In increased capital ratios translated into declining 2011 they accounted for 12 percent. ROE, which prevented a considerable number of banks from earning their cost of equity. Widening gap between best- and worst-per­ Profits decreased by 2 percent from 2010 to 2011 forming banks (and dropped by as much as 15 percent from 2007). In parallel, common equity increased by Notably, across all regions, the banks that man­ 47 percent from 2007 to 2011. aged to improve profitability in the past year were the ones in least difficulty. Half of those Global average ROE fell to 7.6 percent in 2011, with a positive change along the three vectors after improving by 1.7 percentage points to were already in a strong position, while those 8.4 per­cent in 2010, down from as much as with the greatest need made little progress. 13.6 per­cent in 2007. Average ROE is now only Only 6 percent of banks were able to improve Exhibit 3 There is little sign of true banking transformation Percent X Change in percentage points Capital efficiency Revenue margin Cost effectiveness Ratio of on- and off-balance Cost-to- Cost-to- sheet lending Before LLP After LLP income ratio assets ratio 100% = 81 85 USD 3.2 58 60 1.9 1.8 3.1 Non- tr 13 13 financial -0.1 2.7 2.7 +1.5 0 bonds 16 17 Securitized 0 loans Non- securitized 70 71 loans 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 Note: Cost ratios and margins (calculated over assets) are based on a sample of 193 banks with eligible data out of top 300 banks by market capitalization SOURCE: Thomson Reuters; McKinsey Global Institute; McKinsey Global Banking Pools
  15. 15. The triple transformationAchieving a sustainable business model 13both cost efficiency and margins over the past to 12.7 percent in 2011, from 12.2 percent inyear, while close to 30 percent of banks saw 2010, and 7.5 per­cent in 2007. They reduceda weakening of both cost and margin ratios. RWAs by 2 per­cent from 2010, reaching near­The gap between best- and worst-performing ly the same absolute level as in 2007.banks will likely widen further in the comingyears (Exhibit 7). However, the sector still faces significant chal­ lenges, as illustrated by slowly recovering revenues (only 1 percent growth over 2010,Three regional variations on a theme – little -30 percent compared with 2007), volatileprogress towards a sustainable model in the margins (-48 basis points versus 2010, butUS and Europe, while Asian growth will be +22 basis points versus 2007) and increasedmore volatile. costs (cost-to-income ratio of 68 percent, versus 60 percent in 2010 and 62 percent inƒƒ US: a tough road ahead. American banks 2007, and cost-to-asset ratio of 3.2 in 2011, became more stable as they successfully 3.1 in 2010, and 2.8 in 2007). cleaned up bal­ance sheets through signifi­ cant write-downs and the creation of good- US banks had an average ROE of 7 percent bank/bad-bank structures to sequester and in 2011, a rise of 0.8 percentage points from remove troubled assets. Further, regulatory 2010 (due to declining write-offs), and they are pressure led to a significant improvement in still far from earning their cost of equity. capital bases. US banks lifted Tier 1 ratiosExhibit 4 The rebound has lost momentum – Western European banks post declining revenues Global banking revenue pools after risk cost, USD trillions1 CAGR 2000 - 10 2010 - 11E 3.6 3.4 3.4 5% 3% 3.3 3.3 3.1 3.0 China 20% 10% 3.0 2.8 2.5 Other 2.3 11% 12% 2.4 2.2 emerging2 2.1 2.1 Other 1.8 5% 0% developed3 1.2 Western 0% -1% Europe 0.6 US 2% 1% 0 2000 01 02 03 04 05 06 07 08 09 10 2011E 1 Constant 2011 exchange rates 2 Includes CEE, CIS, India, South East Asia, South Asia, Northern Africa, Sub-Saharan Africa, Latin America, and Middle East 3 Includes Australia, Canada, Hong Kong, Korea, New Zealand, Singapore, Taiwan, Japan SOURCE: McKinsey Global Banking Pools
  16. 16. 14 ƒƒ Europe: significant risks and distortions. Reserve, has provided dollars to European Despite significant efforts to stabilize the banks. Recourse to the ECB increased sig­ banking system, risk among European banks ni­fi­cantly for both refinancing and deposits: has increased. Although Tier 1 capital levels while approximately €1.4 billion of liq­uidity rose by 0.4 percentage points from 2010, the were provided to the banking system, some additional risk buffer would be in­suf­fi­cient €340 billion of deposits were placed with if one of the looming macro­economic risks the ECB and national banks as of August materializes. Leverage remains high, with 2012 (which was a near 50 percent decline asset to equity ratios averaging 24. compared with May 2012). Spanish, Italian, and Greek banks were heavily dependent on In addition, European banks have yet to real­ ECB operations, highlighting wide disparities ize all of the bad loans in their portfolios. across the region. Meanwhile, funding issues in the eurozone In addition to further stabilizing their capital have made firms increasingly dependent on and funding sources, and cleaning up bal­ance central banks. The European Central Bank sheets, European banks must improve their (ECB) has stepped in as a provider of long- revenue and cost bases. In Western Europe, term liquidity with tender programs at the end revenues after risk costs were flat, reaching of 2011 and beginning of 2012. Additionally, $761 billion in 2011. Revenues are down 16 per­ the ECB has softened collateral require­ cent from 2007. In line with the United States, ments and, in coordination with the Federal European banks did not show any improve­ Exhibit 5 On a global level no cost improvements observable 2011 Percent, constant 2011 exchange rates 2010 Cost-to-income ratio Cost-to-asset ratio 67.7 3.2 US 59.9 3.1 67.7 1.5 Europe 63.9 1.5 55.8 4.4 Latam 56.5 4.8 42.4 1.4 Asia1 44.4 1.4 59.8 1.8 Global 58.3 1.9 1 Excl. Japan and Australia SOURCE: Thomson Reuters; McKinsey Global Banking Pools
  17. 17. The triple transformationAchieving a sustainable business model 15 ment along the cost vector, with cost-to-income driven by a drop in China, where growth was ratios increasing 4 percentage points, while 10 percent, compared with 41 percent in cost-to-asset ratios remained unchanged. This 2010. In other Asian markets, revenue growth led to an ROE of 0 per­cent – or 5 percent if the was stable at 8 percent. peripheral countries – Greece, Italy, Ireland, Portugal, and Spain – are excluded. Emerging Asia banks cut cost-to-income ratios to 42 percent in 2011 from 44 percentƒƒ Emerging Asia5: continued growth – the previous year but did not cut cost-to- though slower and more volatile. Emerging asset ratios. Asia banks managed to keep their sound capital and stability ratios intact and will con­ On average, Emerging Asia banks earned an tinue to drive over 39 per­cent of global bank­ ROE of 17 percent in 2011, compared with ing revenue growth. 15 percent in 2010. Still, increasing risk costs (+10 percent from 2010 to 2011), highlighted the However, while banks increased Tier 1 ratios fact that they are not isolated from the global by 0.2 percentage points to 10 per­cent (slightly macroeconomic environment. Further, capital below the global average), there was a decline requirements in some markets are even tough­ in revenue growth over the past year, largely er than required under the Basel III framework.5 Excluding Japan and AustraliaExhibit 6 Industry profitability remains significantly below precrisis levels – cost of equity not earned in developed markets Percent Total global ROE1, 2000 - 11 Comparison of ROE and COE2 18 by region (preliminary), 2011 16 ROE COE ROE - COE 16 15 Latin 14 19 12 - 14 5-7 14 America 12 Asia3 17 10 - 12 5-7 10 8 Other 10 9 - 10 0-1 8 9 developed 6 US 7 8-9 -1 to -2 4 4 Europe 0 9 - 10 -9 to -10 2 2000 02 06 08 2011 1 Based on a sample of 906 – 1961 quoted banks with eligible data 2 Calculated with a CAPM-based model, but includes liquidity adjustment to reflect current market situation 3 Without Japan and Australia SOURCE: Thomson Reuters; McKinsey Global Banking Pools
  18. 18. 16 Finally sharp drops in customer loyalty are Within emerging Asia, China faces specific beginning to fragment customer wallets, challenges. Regulators and banks acknowl­ again impacting profitability. Overall, these edge a rise in bad debt, especially from loans forces, unmitigated, will reduce ROE by to local governments and SMEs. Whereas 3 to 4 percent; a level that for some banks is local government bad debt is estimated at below the cost of equity. $400 billion6, the potential impact of bad SME loans remains difficult to evaluate, Given the growth expected in Asia, banks will partly because a reasonable proportion has need more than $1 trillion of largely growth been financed through the shadow banking capital (over and above retained earnings) system. Also, the Chinese government set through the coming decade. Against a back­ growth expectations of only around 7.5 per­ drop of declining ROE, banks must innovate cent in 2012 – below the 8 percent previ­ to attract private sector funding. Further, in ously targeted and thought to be necessary some Asian markets, policy action may be to maintain a har­mo­ni­ous social society.7 necessary to manage industry structure and Lastly, there is a sig­ni­fi­cant risk in the transi­ support efforts to raise capital. tion from a heavily directed economic growth model to a market-driven economy, which 6 Reuters: “Special report - China’s debt pileup raises risk of hard landing”, October 10, 2011 7 Chinese Government Work Report 2010 on Mar 5, 2010 Exhibit 7 Increasing gap between best- and worst-performing banks expected ROE of banks continuously reported by Reuters between 2000 and 2011, percent ESTIMATE Top performers1 Bottom performers2 30 Potential outlook 20 10 0 Interim support via state subsidies -10 and central bank policies -20 2000 01 02 03 05 07 09 11 2013 1 Top decile 2 Bottom decile SOURCE: Thomson Reuters; McKinsey Global Banking Pools
  19. 19. The triple transformationAchieving a sustainable business model 17 requires a difficult bal­ancing of reforms and due to improved performance in Russia and safeguards. The on­going interest rate liber­ Poland. While the challenges are somewhat alization is an example of the many difficult different in Latin America (e.g., rapid margin transitions ahead. declines), Eastern Europe (e.g., con­tagion to EU) and Africa/Middle East (e.g., com­modityƒƒ Other emerging markets: high growth, price risks), there was a remarkable uni­formity but increasing challenges. Latin American of P/B declines over the last 12 months. and Eastern European banking markets Aver­age P/B ratios declined to 1.7 in Latin continued growing in the recent period. Latin America and 1.4 in Eastern Europe and American banking revenues grew by 15 per­ Middle East/Africa. cent in 2011 and Eastern European rev­ enues expanded by 14 percent. Uncertainty caused by rebellions in North Africa and Investor confidence remains low – reduced Bahrain reduced revenue growth in Middle expectations of a quick recovery East/Africa to 3 percent. While at different stages of development, these markets are Although regional differences are significant, all subject to increased risk costs and grow­ one common denominator is that investor ing profitability challenges. Risk costs rose confidence in the banking sector has declined 7 percent in Latin America and 14 percent globally, and capital markets have wasted no in Middle East/Africa, whereas Eastern time in punishing banks for their lackluster per­ European risk costs were stable in 2011, formance.Exhibit 8 Capital markets question the sustainability of the business model Average bank price-to-book value Developed P/BV multiples Q2 2012 Emerging 4.0x 3.8 Percent 100 100 2.0x 7 20 3.0x 1.0x - 2.0x 27 2.3 39 2.0x 1.5 1.6 1.4 1.0x 66 1.0x 0.8 1.0 41 0.7 0x Developed Emerging 2000 07 09 11 Q2 markets markets 12 SOURCE: Thomson Reuters; McKinsey Global Banking Pools
  20. 20. 18 Banks’ costs of borrowing have risen substantially. and medium-term macroeconomic shocks. In The average price of insurance against default de­vel­oping markets, over 40 percent of banks in the credit default swap market of 124 banks traded at price-to-book ratios of less than one, sampled rose above 370 basis points in the past reflecting investor uncertainty over short-term year, the highest level on record. prospects (Exhibit 8). At mid-2012, bank stock market valuations were Average price-to-earnings ratios were around 11 relatively low, with average price-to-book ratios in 2011, compared with 15 in 2007. Although total of 0.8 in developed markets and 1.5 in emerging equity has risen by 5 percent since 2010, and markets. That was a decrease of 20 percent and 47 per­cent since 2007, average market capitaliza­ 21 percent respectively over 2010 year-end mul­ tions remain significantly below precrisis levels. ti­ples, and a drop of 51 percent and 59 percent against 2007 figures. Some two-thirds of banks These messages from the market reflect fun­ in developed markets traded below book value – damental skepticism over the future of the bank­ amid concern over dilutions from further capital ing sector. take-ups, additional write-offs, low earnings,
  21. 21. The triple transformationAchieving a sustainable business model 19
  22. 22. 20
  23. 23. The triple transformationAchieving a sustainable business model 21 Chapter 2 Earnings headwinds may increase
  24. 24. 22 2. Earnings headwinds may increase The regulatory, technological, and macro­eco­ Basel 2.5 and Basel III frameworks, and a shift no­mic challenges banks are facing are likely to to standardi­zation, transparency, and clearing increase rather than diminish over the coming through central clearing houses for OTC deriva­ years, re­strain­ing earnings growth. Further, many tives. The G20 has also mandated an additional ins­ti­tu­tions recog­nize that increased profits alone capital surcharge for globally systemically impor­ may not be sufficient to renew investor trust and tant financial in­sti­tu­tions (G-SIFIs) and has required improve market valuations. Sustainable growth G-SIFIs to develop recovery and resolution plans is the key. Meanwhile, the difficulties banks are for times of stress. ­facing have been exacerbated by recent scan­ dals, which have fueled mistrust among custom­ In addition, there is ample regulation on a regional ers and society at large. and national level. In the United States, the Dodd- Frank Act mandates more than 200 new regu­ lations, and 67 studies and reports to be con­ Challenges more daunting than expected ducted by regulators. The United Kingdom may “ring-fence” retail banking operations in 2015, fol­ Regulation has become more complex lowing the recommendations of the Independent and burdensome. The banking sector faces Commission on Banking. unprecedented reg­u­latory change, led by the new frameworks to which the G20 leaders have In the retail sector, a wave of consumer protec­tion committed them­selves. These include new has been rolled out, with a potentially signifi­cant rules for capital, liquidity, and funding under the effect on profitability. The changes range from Exhibit 9 Regulation will strongly affect retail banking profitability – INACCURACIES ARE DUE TO ROUNDING Basel III as main driver 2010 ROE, percent France UK Germany Italy Preregulation 13.5 13.6 6.6 5.1 Basel III -2.9 -2.8 -2.1 -1.4 EU mortgage -0.4 -0.4 -0.1 -0.3 directive EU payments -0.2 -0.1 -0.1 -0.1 regulation (SEPA) EU investment -0.4 -0.5 -0.4 -0.1 regulation (MiFID 2) Country-specific n/a2 -2.8 -0.3 n/a2 regulation1 Postregulation 9.5 7.0 3.6 3.1 1 Germany: taxes and levies; establishment of a fee-based advisory model; UK: ICB ring-fencing, FSA on PPI, living wills, account switching/portability, taxes, and levies 2 Country-specific regulation in France and Italy has either been implemented already in 2010 or has only low impact and therefore has not been modeled SOURCE: Day of Reckoning for European Retail Banking (McKinsey, July 2012)
  25. 25. The triple transformationAchieving a sustainable business model 23needing to keep meticulous records of customer four largest markets (Germany, France, Italy, andconsultations and providing exten­sive product the UK) would fall on average by 4 per­centageinformation to fee caps and the complete prohi­ points to 6 percent8 (Exhibit 9).bition of certain products. The European Unionhas further directives in the pipeline that regulate The impact of regulation on the global capitalmortgages, payments, and investment products. markets business is even more significant, andSeveral countries have imposed levies on banks under a similar analysis of top 13 global playersto recover some of the damage of the crisis, and ROE would fall from 20 percent to 7 percent9have moved to protect consumers through high­ (Exhibit 10).er levels of transparency. Regulation will also lead to a reassessment of theThe combined impact of these regulatory chang­ benefits and challenges of size. The pressure ises could be dramatic. For example, if all regula­ likely to be particularly felt by those uni­­versal bankstions in the pipeline were applied with immediate that are regarded as G-SIFIs (see above), due toeffect, and assuming banks took no mitigating their significant in­vest­ment banking activities andactions, 2010 ROE for retail banking in Europe’s strong retail and corporate banking presence.8 See McKinsey White Paper “Day of Reckoning for European retail banking”, July 2012 (mckinsey.com)9 See McKinsey Working Paper on Risk, Number 29 “Day of Reckoning? New regulation and its impact on capital-markets businesses”, September 2011 (mckinsey.com)Exhibit 10 Regulation will fundamentally deteriorate economics ESTIMATE of capital markets products ROE, percent Critical ROE below 10% Businesses Preregulation A Postregulation B Postmitigation C Post-bus.- changes 1 1 FX 30 16 ~ 19 ~ 19 2a Flow rates 19 8 11 - 12 12 - 13 2b Structured rates 15 4 7-8 9 - 11 3a Flow credit 18 6 10 - 11 11 - 14 3b Structured credit 17 3 7-8 8 - 11 4 Commodities 20 8 ~ 11 11 - 12 5 Cash equities 25 15 ~ 18 ~ 18 6a Flow EQD 25 9 ~ 11 ~ 11 6b Structured EQD 27 9 12 - 13 13 - 14 7 Prime services 15 8 11 - 12 12 - 13 8 Proprietary training 35 7 11 - 12 11 - 13 Total CM 20 7 11 - 12 12 - 14 10 10 10 1 Very rough estimate SOURCE: Day of Reckoning? New regulation and its impact on capital-markets businesses” (McKinsey, September 2011)
  26. 26. 24 Those in­sti­tutions will face the chal­lenge of giving rise to discussions over whether the sec­ demons­trating superior profitability to com­ tor needs to be more tightly regulated. Also, the pensate for forthcoming G-SIFI capital sur­ debate on the need for structural changes, for charges and additional regulatory burdens. For example the separation of some businesses example, European retail banks face a potential and the prohibition of certain activities, which ROE decline under G–SIFI legislation of 40 to 120 seemed to be settled with the US Volcker rule basis points10 (Exhibit 11). and the “ring-fencing” recommendations of the Independent Commission on Banking in the UK, In the recent period, public sentiment toward has recently returned in many Western markets. the banking sector has deteriorated11, and fur­ ther regulation cannot be ruled out. Continued A side effect of tighter regulation is the growth of high levels of compensation, perceived credit the shadow banking system.12 Shadow banking crunches in segments such as lending to small already accounts for 15 to 18 percent of the global and medium-sized enterprises, as well as size­ capital market and investment banking revenue able trading losses and the LIBOR fixing scandal pool, and is set to grow by 5 to 10 percent a year, have had a negative impact on public opinion, 10 See McKinsey White Paper “Day of Reckoning for European retail banking”, July 2012 (mckinsey.com) 11 2012 Edelman Trust Barometer 12 Shadow banking, as defined here, includes the following banking activities: advisory, issuances, underwriting, market making and prop trading by nonbank players Exhibit 11 SIFI status lowers European retail banking ROE by additional 40 to 120 bp SIFI bucket (additional European retail banking ROE Tier 1 capital) Percent, EU Ø Postregulation 5.84 pre-SIFI Post-SIFI1 Bucket 1 5.45 (1%) Bucket 2 5.25 (1.5%) Bucket 3 5.08 (2%) Bucket 4 4.93 (2.5%) Bucket 5 4.68 (3.5%) 1 Impact estimated as average based on 4 countries average impact SOURCE: Day of Reckoning for European Retail Banking (McKinsey, July 2012)
  27. 27. The triple transformationAchieving a sustainable business model 25although there is a possibility that regulation and banking give banks the opportunity to book sig­responses from incumbents could temper this. nificant efficiency gains in branch networks.Customer and technology revolutions have Technology is also playing an increasingly criticalaccelerated. Technological changes and role in corporate and investment banking. In thehigher levels of customer mobility will influ­ front office, the penetration of electronic tradingence the way banking players operate over across equities and fixed income is growing (upthe coming decade, and may fundamentally to 55 to 65 percent of notional volumes in FX),transform the banking value chain. In particular, and continues to transform interactions withthe accelerated dis­sem­ination of smart phones clients. For the middle and back office, havingand tablets, offer­ing convenient mobile Internet scalable, robust technology platforms can helpaccess, will drive new customer behaviors, leading firms derive ~ 80 percent lower unit costswhich we will further explore in the retail section per trade. Finally, robust technology platforms –of Chapter 3. including strong data management capabilities – are necessary to meet increasing regulatoryThe financial services “ecosystem” is becom­ demand (e.g., the move to central clearing foring more diverse, with nonbank entrants gain­ OTC derivatives).ing market share in customer-facing areas, anddown-streaming parts of the value chain. Banking In the longer term, different technology-drivencustomers now have real alternatives to traditional scenarios are possible. In the best-case scenariobanks, a critical situation for incumbents when for banks, they will become multiservice digitaltaken with the very serious reputational issues giants, capturing new wallets through financeacross the sector. and digital services. Already there are examples of banks acting as one-stop access points forStill, technology does not need to be a com­petitive digital services, offering an ecosystem of solu­threat, and may be a benefit. For example, incum­ tions, including e-commerce, travel, and portals,bents may boost loyalty if a customer can person­ in addition to traditional banking services.alize his banking service platform. Macroeconomic volatility adds to gloom.In retail, some regions are several years ahead The pace of global deleveraging seems to bein terms of technology uptake. For example, increasing, driven by regulatory restraints andInternet banking penetration in northern Europe the increased cost of funding in developedis 76 percent, an increase of 19 percentage markets. In Asia, overheating pressures maypoints in the past five years, while the number of cause liquidity to dry up. The level of outstand­branches in the region has declined by 24 per­ ing private sector loans and corporate debtcent since 2001.13 Mobile online interactions, (bonds) relative to GDP increased 10 percent­meanwhile, have soared by 100 percent in the age points to 110 percent in the 10 years topast year, overtaking “stationary” online inter­ 2010. It is likely to decline to 109 percent byactions.14 Mass migration to online and mobile 2020 (Exhibit 12).13 Eurostat14 EFMA and McKinsey Mobile Banking survey
  28. 28. 26 The effects of deleveraging may be exacerbated ing inflation. The decline in external demand by medium-term macroeconomic risks. comes on top of cross-cutting slowdowns in both consumer and investment activity. As a The state of the global economy has become result, government authorities are attempting even more fragile. The eurozone is, for all prac­ to support growth through pro-business regu­ tical purposes, in recession, with the remaining latory measures (India), investment-focused risk of a breakup, while US growth is far from stimulus (China), and large-scale infrastructure robust. Further, governments in advanced econ­ programs (Brazil). omies have their hands tied, with budgetary or political roadblocks constraining fiscal expansion and historically low interest rates limiting mon­ A trend-break in sector growth etary policy firepower. The fundamental performance challenges The weakness in advanced economies has des­cribed above suggest the 30-year trend of ­rippled through emerging markets in the form of bank­ing revenue growth exceeding GDP growth weaker exports, which could presage a harder- (leading to banking accounting for a growing than-expected landing for some countries as share of GDP) is likely now being broken. The they struggle to counter the retreat in domestic year 2007 might remain the high-water mark for and external demand. China, India, Brazil, and banking revenues as a share of GDP until as late Russia are all showing signs of pressure, with as 2020. In both emerging and developed mar­ the latter three facing concerns over accelerat­ kets, banking revenues are expected to flatline Exhibit 12 The end of leveraging in the developed markets is slowing BASE CASE drive for loans Total private sector loans to GDP, percent Potential outlook 140 Western Europe 120 Asia1 Global average US -1% 100 +10% 80 2000 2010 2020 1 Excluding Japan and Australia SOURCE: Thomson Reuters; McKinsey Global Banking Pools
  29. 29. The triple transformationAchieving a sustainable business model 27at around 5 percent of GDP for the foreseeable picture. While banking penetration in Brazil isfuture (Exhibit 13). more than 10 percent of GDP, countries at the other end of the spectrum, including Russia,In North America, banking penetration fell to India, Nigeria, and Mexico, have rates below6.3 percent in 2011, from a high of 7.8 percent in 4 per­cent of GDP.2007, and is not expected to return to precrisislevels until after 2020, given that banking rev­ In China, the current penetration rate is 6.2 per­enues are projected to increase at 4 percent a cent of GDP, but is expected to decline to 5.3 per­year, near the same level as forecasted annual cent by 2020. Here, as in some other emergingGDP growth. In Western Europe, banking pene­ markets, strong growth in customer volumes istration is expected to remain flat around the cur­ likely to be outweighed by declines in revenuerent rate of 4.5 percent, with banking revenues margins towards levels seen in developed coun­set to grow in line with GDP at between 4 and tries, combined with falls in risk costs.5 percent a year. The reason why banking revenues may at leastIn emerging markets, we expect banking rev­ keep the pace are the natural financing needsen­ues as a percentage of GDP to stay steady of expanding market eco­nomies. Up to 2020,at around 5 percent, but with high annual GDP global credit stock is expected to grow at anand banking growth rates of approximately annual rate of 7 percent, in line with consensus11 per­cent. Looking at individual countries, nominal GDP growth, with emerging marketshowever, we find a much more heterogeneous achieving 11 percent growth, while developedExhibit 13 It is likely that there is a trend-break in relative growth of banking industry after ~ 30 years of steady increase in banking penetration Relative size of banking revenues after risk cost to nominal GDP, world, percent Crisis in Southeast Asia Dot-com bubble bust Potential 1987: Black Monday Mexico crisis outlook 6.0 5.0 Financial crisis 4.0 3.0 2.0 1.0 0 1980 1990 2000 2010 2020 SOURCE: OECD; McKinsey Global Banking Pools
  30. 30. 28 market credit expands annually by 5 percent. ƒƒ Interest rate recovery – a call option for Over the same period global ­infrastructure deposit-rich or transaction-heavy banks. investment is expected to rise by 60 percent, As discussed above, persistently low interest and foreign trade flows as a propor­tion of real rates reduce margins on financial products. GDP could grow from 27 percent to 37 percent. Interest rate recovery would boost margins Further, the emergence of a new customer for deposit-rich banks and help increase class in emerging markets, with some 2.5 billion ROE. Our simulations show that a 100 basis adults currently without access to banking (plus point in­crease in underlying interest rates the needs of an ageing population in developed would in­crease ROE by 1 percentage point economies) may constitute a base on which to in the United States and 0.6 percentage build profitability in the longer term. point in Europe. The benefit is greater in the United States because interest rates and loan-to-de­posit ratios are currently lower What is the size of the performance challenge? than in Europe, creating a relative advantage in any rise. Based on our analysis of the impact of capital regulation and estimate of the size of the global ƒƒ Structural repricing. If banks continue banking revenue pool, we simulated an unman­ to earn returns below their cost of equity, aged scenario for Europe and the United States, inves­tors may be unwilling to commit sig­ which does not include the various mitigating nificantly more capital. As a result, lending actions the sector has already announced or initi­ capacity will grow more slowly than demand ated. Under this scenario, the ROE of the sector and result in structural repricing. In some will stay considerably below the cost of equity areas, such as asset finance, this effect is in Europe (5 percent) and the United States already visible. This is a fundamental posi­ (approximately 6 percent) until 2015. In order to tive for the banking sector compared with achieve a 12 percent ROE (a level that would gen­ other industries – for example semiconduc­ erate a reasonable return over the cost of equity), tor manufacturing. There, overcapacities cost-to-income ratios would be required to drop and low pricing can only be overcome by a to 46 percent in Europe, from an average 68 per­ painful restructuring process, with players cent in 2011 and to 51 percent in the United exiting the market. Since the adjustment States, from 68 percent in 2011. The magnitude process in banking will take time, we will of this challenge highlights the need for the triple probably see the emergence of repricing transformation we describe in Chapter 3. until the cost of equity is reached. However, if mar­kets are highly fragmented and a sig­ nificant proportion of players are not publi­ What might boost earnings? cally listed, or have access to equity from shareholders with different return expec­ In the medium term, two potential market-driven tations, such as the state, the repricing developments could give banks a boost: inter­ mechanism may not function. est rate recovery and sector repricing. Still, these changes would only ease the banking sector’s current ROE challenge, rather than overcome it.

×