"While prudently managing the current uncertainties and risks, banking leaders are increasingly focused on the opportunities that lie ahead in a changing world. ”
In this era of global economic and geopolitical flux, global banking leaders face a myriad of complex challenges. These include considerable market uncertainty, changes in the financial health and behaviour of bank customers, increased regulatory and capital requirements, and the opportunities and risks posed by rapid technological disruption. Against this backdrop, KPMG surveyed 142 banking CEOs around the world to gather their views on the business and economic outlook for the next three years.
The survey results show that despite these challenges, CEOs remain confident in their outlook for the next three years, and they are taking a purpose-driven and proactive approach to building organizational resilience and pursuing pragmatic growth. It is also important to note that while CEOs are clearly optimistic about overall business growth, they also point out that concerns and risks are changing, strategic planning and leadership are evolving, and there is a growing focus on delivering robust ESG strategies that balance the opportunities and unknown risks of rapidly emerging generative AI.
The KPMG Banking CEO Outlook will share with you the perspectives and insights of these banking leaders.
1. Perspectives and Insights
Zhang Chudong
Head of Financial Services, KPMG China
Our survey shows that Chinese bankers are proud of the achievements of China's banking industry over the past few decades, and they are confident in the future prospects of China's banking industry, although they are deeply aware of the current pressure of transformation.
At present, although there is no upward pressure on interest rates in China, the shock of economic restructuring and the decline in asset yields are plaguing Chinese bankers. Benefiting from the accommodative monetary policy environment, China's banks have continued to grow at a double-digit rate, although the pace of expansion on the asset side has slowed, but the continued narrowing of net interest margins and rising risks have put pressure on banks' revenue levels and profitability. For example, judging from the third quarter reports released by China's listed banks, more than half of the banks' revenues have declined to varying degrees.
Shi Jian
Head of Banking, KPMG China
2023 has been an unusual year for China's banking sector, with rapidly changing macroeconomic and financial conditions. Banks in China generally believe that their past business models are unsustainable and that they need to take the initiative to make adjustments, improve risk management, formulate business strategies that adapt to the new policy and economic environment, and build core competitiveness to survive the cycle.
The Central Financial Work Conference has set the main tone for the high-quality development of China's banking industry. Chinese banks should consider how to effectively support the overall situation of economic and social development, improve the level of financial services, fight the battle to prevent and resolve major risks, and do a good job in science and technology finance, green finance, inclusive finance, pension finance and digital finance.
2. Data and insights
1. Economic value creation
The main sentiment of the CEOs of the banking sector is cautiously optimistic. As a result of measures such as enhanced governance and risk management in recent years, they feel they are able to cope with the current uncertainty.
When asked about the biggest risks to the banking boom over the next three years, CEOs identified the cost of living, disruptive technologies, regulatory requirements, talent, and cybercrime and cyber insecurity.
2. Trustworthy goals
ESG is a top priority for bank CEOs as they have to make investments today that will pay off over a longer period of time. Banks need to embark on a transformation journey with their customers to deeply integrate ESG into their organizations, going beyond short-term regulatory needs to achieve maximum compliance with minimal effort and reap long-term benefits.
3% of CEOs say they are aware that ESG strategy has become a requirement for their organization, and they believe ESG is now fully integrated into their business as a means of creating value.
Fifty-three percent of respondents believe they will see significant returns on ESG investing within three to five years, with 25 percent expecting returns within three years.
Nearly half (48%) of respondents said they were able to address these challenges simultaneously, while 32% said they would emphasize their governance model and transparency to support best practice reporting.
3. Priorities for strategic planning
When asked about their top priorities for the next three years, a growing number of CEOs emphasized the importance of the employee value proposition as one of the means to attract and retain the talent they need (digital is the top priority in 2022). This shift in priorities shows that banks around the world have been on this digital journey for a decade, and most of them still have a long way to go. At the same time, banking remains a "talent business", with most banks realizing that employees are their best asset in delivering the right customer experience, so they must implement strategies to acquire and retain talent in a tough labor market.
4. The pulse of disruptive technologies and generative AI
Business leaders across industries are focused on investing heavily in disruptive technologies, and banking CEOs are no exception. Seventy-three percent of respondents believe generative AI is the most important investment opportunity for their bank, unaffected by economic uncertainty.
More than half (55%) of respondents noted that technical capabilities and AI skills, as well as implementation costs, are extremely challenging. The majority of respondents also noted that ethical questioning and lack of regulation are also challenging.
Seventy-four percent of respondents expect to see a return on investment within five years, while 23 percent are more optimistic and expect it within three years.
When it comes to responding to cyberattacks, while 66% of respondents said they were well prepared for cyberattacks in 2022, this number slipped to 54% in 2023. The number of people who said they were unprepared rose to 21% from 10% in 2022.
3. Future and Recommendations
Based on the overall views and priorities of the CEOs of the banking industry, we are advised to focus on the following themes and take action.
1. Focus on strategic growth
Banking CEOs maintain a positive outlook for the next three years and place a high value on their organization's momentum, as well as on digitalization and talent retention. With a strong interest in M&A, most banks prioritize expanding employee skills and capabilities if the conditions are right. And, in admittedly more complex operating environments, CEOs tend to adopt a more collaborative and shared leadership style.
2. Deliver trustworthy goals
Banking CEOs are aware of the importance of investing to achieve their established ESG and net-zero commitments, particularly in the areas of climate change and diversity and inclusion. Many banks are now investing and embedding ESG rigidities into their businesses to go beyond compliance requirements and achieve long-term investment returns.
3. The development concept of future work
As bank CEOs recognize the need to welcome more diverse talent, develop and retain skilled talent, and promote a values-based work culture, their acceptance of hybrid work models is growing.
4. Passionate about generative AI, but still focused on the challenges
Bank CEOs surveyed expressed strong enthusiasm for the benefits of generative AI and are prioritizing investing in it. While they are highly aware of the challenges that will arise from the adoption of companion technologies, they hope that these investments will deliver a clear return and recognize the need to strengthen the institution's own protective measures.