Global Banking Update: Navigating the New Year

As we navigate through January 2024, the global banking sector is witnessing pivotal shifts and emerging trends, each shaping the future of finance and technology across diverse regions.

Mergers and Acquisitions in Emerging Markets:

Recent insights suggest a resurgence in mergers and acquisitions (M&A) activities. This trend, initially stifled by the pandemic, is now gaining momentum, particularly in emerging markets. The impetus for M&A seems to stem from larger banking groups aiming to consolidate their presence in core markets. Conversely, smaller banks, grappling with heightened competition and technological challenges, may seek consolidation or exit strategies. This is especially evident in regions like emerging Europe and Sub-Saharan Africa, where the banking landscape is dotted with a multitude of small banks.

Fintech Firms Challenge Traditional Banking:

Fintech firms continue to disrupt the traditional banking model, primarily through deposit mobilisation. While these firms have not significantly ventured into credit disbursement, their role as deposit collectors and payment channels is rapidly expanding. This growth trajectory suggests a gradual shift towards traditional lending activities, although regulatory frameworks will likely evolve to accommodate this shift.

Digital Banking Transformation and AI Integration:

The banking sector's digital transformation is accelerating, with Artificial Intelligence (AI) playing a critical role. AI is reshaping financial services, from anomaly detection in accounting to streamlining risk assessments. The predictive capabilities of AI are also being leveraged in areas like credit card services and fraud detection. However, this rapid integration also highlights the AI skills gap in finance, underscoring the need for increased data scientist recruitment to meet future objectives.

Economic Headwinds and Credit Growth:

Nominal credit growth is expected to remain resilient, although it is likely to be tempered by "ghost deleveraging", particularly in emerging markets. This phenomenon reflects a nominal expansion in credit that falls below its long-term trend. This cautious stance from banks is likely to impact both corporate investment and household spending, contributing to slower economic growth.

Rising Credit Risks and NPL Ratios:

Credit risks are forecasted to escalate in 2024, evidenced by rising Non-Performing Loan (NPL) ratios. This increase in credit impairment is driven by a combination of factors, including higher interest rates, slowing economic growth, and sector-specific risks in real estate and corporate financing. Such dynamics are likely to trigger a higher level of bankruptcies, particularly in economies grappling with real estate sector downturns and increased funding costs.

Sovereign Debt Concerns:

Banks in emerging markets are likely to face increased pressure to fund domestic governments, especially in countries with limited access to international capital. This scenario raises concerns about the vulnerability of the banking sector to sovereign debt distress and arrears accumulation.

Anticipated Developments in CBDCs:

2024 may witness significant advances in Central Bank Digital Currencies (CBDCs). Investments in blockchain technology are expected to yield progress in the adoption of CBDCs and private sector applications. This could potentially disrupt traditional banking products like foreign exchange and cross-border payments.

In conclusion, the global banking landscape in 2024 is characterised by a blend of competitive pressures, technological advancements, and economic challenges. As the sector evolves, it becomes increasingly important for banking professionals to adapt and stay informed about these dynamic changes. Understanding and navigating these shifts is key to thriving in the intricate landscape of global finance.

Sources:

• Seeking Alpha. (2024) 'Top 10 Themes For Global Banking In 2024', Seeking Alpha. Available at: https://seekingalpha.com/ (Accessed: 12 January 2024).
• FinTech Magazine. (2024) 'Digital banking transformation: Accelerating into 2024', FinTech Magazine. Available at: https://www.fintechmagazine.com/ (Accessed: 12 January 2024).
• S&P Global. (2024) 'Top 10 themes for global banking in 2024', S&P Global. Available at: https://www.spglobal.com/ (Accessed: 12 January 2024).
• Reuters. (2024) 'Citigroup profit to take $3.8 billion hit on charges, reserves', Reuters. Available at: https://www.reuters.com/ (Accessed: 12 January 2024).
• Reuters. (2024) 'Commerzbank partners with Global Payments to serve small merchants', Reuters. Available at: https://www.reuters.com/ (Accessed: 12 January 2024).
• Reuters. (2024) 'US banks' profits to shrink as they brace for souring loans', Reuters. Available at: https://www.reuters.com/ (Accessed: 12 January 2024).