Bank Valuations Likely To Rise By $7 Tn In 5 Years: Report
Amid the ongoing concerns of an economic slowdown, global banks could boost their valuations by a combined USD 7 trillion in the next five years if they take significant steps to promote growth and enhance productivity, according to a report released by the Boston Consulting Group (BCG) on Monday.
While acknowledging that returning to pre-global financial crisis levels of profitability and valuations may be elusive, the BCG report emphasised that banks can achieve sustained profitability, meet climate transition obligations and drive economic growth through strategic and bold transformations.
BCG's analysis underscored the urgency for banks to address performance issues comprehensively. With a call to action, the report advocated for a radical departure from incremental improvements to embrace a holistic transformation that not only creates shareholder value but also aligns with societal expectations.
The report noted that it is time for banks to make significant changes because their proportion of total assets is declining and that fintech and large tech companies are becoming more and more competitive. With interest rates on the rise and more established competitors posing regulatory challenges, banks have a rare window of opportunity to make big changes.
Notably, governments are poised to place higher expectations on banks to champion climate transition and corporate social responsibility. BCG anticipated that the climate transition, while creating new business opportunities, would also exert short-term pressure on profitability, prompting regulators to impose additional capital and liquidity requirements.
To navigate these challenges, BCG suggested a cooperative approach between regulators and governments, encouraging agile rule-making, consolidation, and the adoption of industry utilities and digital assets.
Additionally, the report stated that BCG advises a digital-first strategy to spur increased productivity as banks aim for competitive domination. It also suggests a zero-based business model to increase productivity by 40 per cent over the status quo. Enhancing value necessitates portfolio decisions like embracing strategic growth areas and abandoning low-return business lines.
