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More than half of the world's banks could be in trouble in the next crisis because their profitability is insufficient to cover the cost of capital. That's what research firm McKinsey writes in its latest Global Banking Annual Review 2019. Not only has the profitability of many banks declined since the 2008 financial crisis, but most banks are too small to withstand another crisis.
According to the research firm, banks in Europe and Asia in particular are now in a bad position. In emerging economies, it is Return on material assets For example, it dropped from 20% in 2013 to 14.1% in 2018. That is the return on capital excluding the intangible assets, such as goodwill. In developed economies, this percentage rose from 6.8% to 8.9% over the same period, but even that is not enough in a crisis. Long-term low economic growth with low or even negative interest rates can cause many problems.
According to McKinsey, banks can prepare for worse times by improving their risk management, productivity and revenue growth. Banks could make greater use of artificial intelligence and advanced analytics to improve their risk management. They also need to implement more cost reductions and reforms and further automate tasks.
About a third of all banks worldwide have insufficient scale or are in an unfavorable market, according to the research firm. These banks need to reform drastically. If they don't, a merger or acquisition is the most likely option. According to McKinsey, 60% of banks currently do not create value, but destroy it. Their survival is therefore uncertain if there is a new crisis like the one in 2008.
This contribution comes from Geotrendlines
