Deloitte’s 2022 outlook for global banks and capital markets: Banks are at a watershed moment, the window for decisive action is closing soon

The pandemic of the past two years has caused continued disruption in society and has relentlessly tested the resilience of banks in previously unforeseen ways. Banks have now regained confidence in how they have met pandemic challenges, Deloitte says Banking and capital markets outlook for 2022. But how to channel this new energy to reach greater heights? This annual report provides insights and information on trends, opportunities and challenges that could have a significant impact on the market and the banking industry in 2022.

According to the report’s analysis, the recovery of the global banking sector is expected to be uneven across regions. In the first half of 2021, banks in Asia-Pacific and Europe continued to increase their loan loss reserves. The top 100 Asian banks increased their provisions by $125 billion while the provisions of the top 100 European banks increased by $25 billion. In contrast, the top 100 US banks over the same period released US$24 billion in loan loss reserves and their counterparts in Canada did the same.

“The brighter outlook for loan loss provisions is helping to boost profitability for U.S. and Canadian banks, but weak loan growth and modest interest income are likely to dampen growth in both countries,” said Val Srinivas, Head of Banking and Capital Markets Research at the Deloitte Center for Financial Services. “Due to overexposure to the sectors hardest hit by the pandemic, most European banks have yet to return to pre-pandemic levels of profitability. In Asia-Pacific, the continued strengthening of Chinese banks is a bright spot in Asia, and banks in Singapore and Australia also remain relatively strong.Otherwise, the region is in the throes of a k-shaped recovery, as many banks in Southeast Asia are facing asset quality issues.

As uncertainty surrounding the pandemic persists, the overall financial outlook is generally positive for the global banking industry in 2022. The rebound in non-interest income on the back of rising trading revenue and fee-based business growth could be more pronounced and result in overall revenue growth. a scale that will generate results”, Val adds.

Jason Guo, Deloitte China Banking and Capital Markets Leader (Mainland China) also stresses: “At this decisive moment, it is essential that banks, large and small, take heed of the tectonic shifts that are reconfiguring the world’s financial systems. For example, pandemic-related challenges have increased pressure on the sector to develop and adopt a more modernized workforce. The bank of the future will require new sets of skills for higher-order work, ranging from purely technical skills to essential human skills, such as empathy, judgment and creativity.

Deloitte’s report highlighted that bank executives today are under great pressure to develop an agile and modern workforce. Employee experience and increasing digital skills should become priorities. Many banks are using alternative talent models to increase their workforce and plan to hire more employees and contractors to provide specialized capabilities in areas such as cybersecurity, cloud, climate science and modeling risks. At the same time, bank executives should adopt a unique blend of leadership traits. Not only must they be more adaptable than ever, but they must also be unabashedly bold while making empathy the foundation of their reinvigorated culture.

“Digitalization is rapidly changing customer expectations and behavior. Today, financial services marketing goes beyond simply understanding and meeting a customer’s needs, customers also expect institutions to give them access and control of their own data,” says James Polson, Deloitte China Banking and Capital Markets Leader (Hong Kong). “While there is room for improvement for banks before customers feel in control of their data, open banking projects around the world will be the catalyst to push banks to give customers control over who can access their data in exchange for something of value in return, such as better prices, higher rates, or greater rewards.”

The rise of digitalization is also placing enormous pressure on banks to cope with the expanding volume, speed and variability of cyber threats, and to meet new business demands as well as increased regulatory expectations. . Cyber ​​incidents, fraud and money laundering are increasingly intertwined as sophisticated criminals exploit vulnerabilities in technology. For example, criminals like identity thieves are often part of sophisticated global crime syndicates using advanced technologies like AI for identity theft. The growing intersection between cyber risk and financial crime has prompted banks to take a collaborative approach and take steps to improve their internal cyber and financial crime monitoring processes.

2022 is a critical year for major banks to set concrete benchmarks to meet their emissions reduction targets. They should also strengthen their stress testing and credit risk modeling procedures; amplify efforts to help clients manage physical and transition risks; and improve their information on climate-related risks and opportunities. The explosive demand for green products and investments globally across all sectors of the economy is creating many opportunities for banks, from lending to carbon trading. In addition to continuing to innovate climate finance through products, global banks should work together to help businesses, industries and countries transition to a net zero world.

“As 2022 begins, ESG is gaining unprecedented attention and value, providing an excellent opportunity for bank leaders to lead the creation of an authentic and differentiated identity that incorporates a higher purpose. of the pandemic, the global banking sector has already gone through the stages of recovery and resilience, and then established a new concept of growth. This will inevitably mean that the banking sector will continue to strengthen,” Jason concludes.

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