Banks re-examine operating models to stimulate growth


By Ken Tysiac

Banking executives in the United States are re-examining their operating models in an effort to stimulate growth while they are faced with increased regulatory pressures and a difficult economy, a recent survey shows.

Just 10% of respondents in KPMG LLP’s Banking Outlook Survey said their banks have no plans to re-evaluate their operating models as part of their growth strategy. Forty-six per cent of the 100 senior executives at US banks surveyed in May already have done a re-evaluation; 34% are in the process of doing so; and 10% said they have plans to do so.

Just over half of the survey respondents work at institutions with revenue exceeding $10 billion based on the last fiscal year. Twenty-three percent are employed by institutions with $1 billion to $10 billion in revenue, and an additional 23% work for banks with $100 million to $1 billion in revenue.

Banks face significant hurdles as a result of the recent financial crisis. Lawmakers and regulators have imposed new restrictions in an effort to reduce the risk of future meltdowns in the banking sector, and 69% of survey respondents said regulatory and legislative pressures will be the most significant barrier to growth over the next year.

Survey respondents said the biggest drivers of revenue growth over the next three years will be traditional services such as loans, savings and mortgages, cross-selling, and asset and wealth management.

“While banks plan to increase lending, they also are taking a more disciplined approach, evidenced by more stringent loan requirements and risk-management practices,” Brian Stephens, US leader of KPMG LLP’s Banking and Capital Markets practice, said in a statement. “Demand also is a question mark, so it’s unclear whether this will help spur growth.”

Global impact, growth prospects

The survey results come during a difficult time for banks worldwide. Moody’s announced last week that it was downgrading the ratings of 15 financial firms globally, including Bank of America, Barclays, Citigroup, Goldman Sachs, HSBC, JPMorgan Chase and Morgan Stanley. Moody’s said the banks were exposed to risk of significant losses in volatile capital markets.

Coupled with the crisis in Europe and JPMorgan Chase’s recent disclosure of a $2 billion trading loss that led to more calls for increased regulation, the Moody’s announcement was part of a wave of negative news to hit the sector in recent months.

Nonetheless, 69% of the executives surveyed by KPMG said they expect moderate revenue growth in the next year, and 6% predict significant growth. It appears that information technology (IT) will be a driver, as it was the top area identified for investment.

Fifty-eight per cent of respondents named IT as one of the three areas where they will most increase spending over the next year. New products or services was named by 37%, and acquisition of a business was cited by 32%.

Staffing plans indicate a slightly optimistic turn, as 39% said they plan to increase headcount and 32% plan decreases in the upcoming year. In the past year, 44% of respondents said they decreased headcount; 31% said they had increased staffing.

Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.

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