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Why corporate banking must digitise to survive

In its report on global corporate banking, the Boston Consulting Group describes a culture of “increasing competition, declining revenues, surging regulatory costs, spiking loan losses, and rising capital requirements”.

Based on the findings of its benchmarking survey of 300 corporate banking divisions around the world in small, medium and large companies, the results of the report – Global Corporate Banking 2016: The Next-Generation Corporate Bank – show a significant gap between the best and the worst performers. In particular, more than 70 per cent of Western European corporate banks improved their economic profit from 2013 to 2015, generating value for their shareholders, compared with just one-third in North America and Asia.

Some of the key findings in the report include:

  • nearly all participants in the study reported increased loan volume but falling margins. With interest rates low – even negative, in some markets – and an increasingly heated search for assets, downward margin pressure is likely to remain a fixture;
  • despite efforts to streamline operations and other expenses, operating costs remain stubbornly high for most banks, fuelled by significant cost increases in compliance and risk. Embedded inefficiencies in traditional working practices add to the challenge, making it harder to extract savings, improve pricing, and manage risk;
  • while lower loan losses boosted performance for banks in some regions, firms in several Asian markets – as well as in economies such as the US that are affected by the volatility in oil prices – experienced a marked rise in loan losses;
  • digital transformation is having far-reaching effects on corporate banking: incumbent banks must embrace deep, systemic digitization to stay relevant, open up new paths to sustained economic profit generation and overhaul all key levers.

CTMfile take: The BCG report urges corporate banking divisions to define their vision and invest in new digital offerings and business models to remain competitive.

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