The Strategist

BCG: Corporate banks have only two to three years to rethink their business

04/12/2018 - 15:40

According to a new report of The Boston Consulting Group, almost half of corporate banks are now losing profits. The researchers believe that only those who carry out a complex digital transformation of their operations will be able to survive. It is noted that corporate banks have only two to three years to occupy their niches, until a competitive environment is formed.

It follows from the report of The Boston Consulting Group (BCG) entitled "Global Corporate Banking 2018: Unlocking Success Through Digital", the segment of corporate banking business is in dire need for digitalization. Earlier, it was mainly in relation to retail banking, now it's turn to corporate. The report’s authors believe that "top-managers of banks will have to make a difficult choice: take urgent measures or jeopardize vitality of the profile business." The report says that bankers are already beginning to realize what tasks they have to solve. In the BCG survey of executives in the corporate banking sector, the overwhelming majority of respondents (86%) stated that digitalization will change both the competitive environment and economy of their banks. At the same time, less than half (43%) of the respondents reported that they have a clear digitalization strategy. Only 19% believe that their organizations have digital capabilities that allow them to lead the market.

In 2017, BCG conducted a comparative analysis of efficiency in the corporate banking business, which measured performance of approximately 200 corporate banking units that provide services to small, medium and large companies. The analysis showed that a significant part of banks are losing profit, especially in the segments of medium and large businesses. The study found that the profit margins are reduced in total in 45% of corporate banking units around the world, although the indicators varied depending on specific regions. In Western Europe, 57% of corporate banking units reported a decrease in profits, while this figure was 38% in North America. It is noted that in almost half of the subdivisions of the corporate segment studied, the return on capital fell below the minimum threshold, despite the fact that the macroeconomic situation as a whole is favorable. In all regions, the problem is most acute in the divisions serving large corporate clients: here the average pre-tax profitability fell below the minimum threshold of 16%. In North America and emerging markets, units that provide banking services to medium-sized companies have shown significantly better results.

The report’s authors admit that every corporate bank has its own unique way of digital transformation with difficulties inherent to each organization. However, banks can be successful if their top managers are aware of the need for urgent digitalization and are rethinking architecture of operations. For this, "it is necessary to make digital transformation a priority strategic task", as well as "rethink the operating model. When implementing new approaches to working with clients, especially to balance the traditional and digital interaction, banks need an operational model that will allow them to provide cost-effective delivery of products and services through various channels, meet rapidly changing customer needs and implement the latest innovations. "


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