Banks show cautious optimism but brace for challenging 2021 – CBI/PwC
The banking sector remains cautiously optimistic, despite business volumes being 12% down on pre-pandemic predictions, according to the latest CBI/PwC Financial Services Survey 2020.
The quarterly survey, conducted between 1-19 September, found that despite the impact of COVID-19 on industries such as travel and leisure, the top line impact for the sector has been less significant. However, 2021 could prove challenging with both banks and building societies already anticipating a sharp increase in the value of non-performing loans over the next three months.
Defaults and write-downs could rise still further as the various government loans and subsidies are eventually reduced and then withdrawn.
Isabelle Jenkins, Banking & Capital Markets Leader at PwC UK, said: “Government support has helped to keep many businesses afloat, but this support will eventually come to an end. As a result, levels of bad debt could rise and demand for new lending could fall back.
“We know that banks are extremely well-capitalised, dispelling any systemic concerns, but it is critical that they make the most of the time between now and 2021 to sharpen efficiency and speed up their response to customers’ changing needs.
“The need to keep base rates low to support a fragile economy will also prolong the squeeze on banks’ net interest margins, so the race is on to drive down costs.
“Banks need to also refocus on new sources of revenue growth, such as maximising fee-based sources of income including wealth management or tapping into collaborative platform models.
“Accelerating digital transformation will play a large part in making this a reality, so now is the time for the sector to get closer to customers and respond to their demands with greater speed and agility.”
Nearly 60% of banks see data or analytics as tools in which to manage financial risks or automate processes, with only 20% of banks citing understanding customer behaviour as a potential reason to use data.. Finally around half of banks are actively partnering with FinTech firms, which could help to provide the necessary tech capabilities to match banks’ wealth of data.
Some 40% of banks said that they have implemented cloud technology, however, a similar proportion have yet to get started on adoption or aren’t considering it at all. Finally, around half of banks are actively partnering with FinTech firms, which could help to provide the necessary tech capabilities to match banks’ wealth of data.
