By The Nation
The trade battle between the US and China as well as geopolitical tensions are undermining confidence and economic momentum across the globe. This has prompted the US Federal Reserve and the European Central Bank to take a more dovish stance, leading to financing conditions that remain broadly supportive for banks worldwide. That said, “low for longer” interest rates and increasing competition from non-bank players, including fintechs, are putting more pressure on bank profitability and business models.
“The low for longer monetary policy is creating a headache for banks, at a time when the profitability of many is already strained and new forms of competition are emerging," said S&P Global Ratings credit analyst Emmanuel Volland in the report “Global Banks Midyear 2019 Outlook: Low For Longer And Digital Prompt Further Rethink”.
Credit conditions remain supportive for banks going into third-quarter 2019, even if trade and geopolitical tensions are undermining confidence and economic momentum.
The Fed’s and ECB’s responses to counter the slowdown are positive for banks’ funding conditions but continue to call into question their business models given that interest margins will remain low for longer. The pressure on profitability is higher in Europe and Japan.
The vast majority of outlooks on banks is stable globally, and the bias has become less positive in Europe.
Credit losses have likely bottomed out in many countries, while capitalisation is unlikely to improve further.
The steady push to make systemic banks resolvable continues, through a variety of approaches across the world.
Technology is disrupting retail banking across the globe. Banks’ ability to respond will depend on their digital readiness, the report said.