Doubts over future profitability at UK banks, says KPMG report

19/03/2012

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...knocked a significant dent in the profitability of all banks and PPI and other customer redress had an even more significant impact. In addition, the cost of regulation is starting to bite and this will not ease off anytime soon, especially as work on implementing the Independent Commission on Banking recommendations and recovery and resolution plans heats up. Add to the mix the fact that UK banks will soon be facing a new look regulatory regime presenting the significant challenge of managing a dual regulatory relationship with both the prudential and conduct supervisors.

“All in all, banking in this country requires major changes in business models and remuneration levels for staff to meet the increased capital requirements. Banks can improve their capital ratios either by raising capital or deleveraging. At present they are finding it tough to generate capital and it is therefore easier to reduce overall lending.”

Retail banking

“With interest rates at a historic low in the UK, banks continue to face intense pressure on liability margins with stiff competition for deposits to improve funding. Non-interest income has remained broadly flat compared with 2010. Against this backdrop, future profitability is a key concern for retail banks and I anticipate additional price increases for customers. Further job cuts are also inevitable.

“Mobile banking will be a battleground for 2012. The banks that are not already implementing their strategies for smart phones and tablets will lose out.

Investment banking

“The investment banking sector has had a year to forget, with the industry as a whole underperforming. While 2011 got off to a strong start, the Eurozone crisis and subdued market activity made life hard through the rest of the year. 2012 has also started well and some mild optimism has returned. Hopefully this will continue and we won’t see a repeat... continued on page three >

 

 

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