Regulatory Climate will remain Dynamic and Adaptation is only option for Banks

 

World is facing dual challenge of depression hit growth and fragile banking environment in developed economies which are slowly but surely engulfing growth engines of BRICS nations. Banks are facing near perfect storm of challenges and conflicts in an uncertain and volatile environment both locally as well as globally. Since 2008, its strongly felt that financial industry is needed to restore investor's , customer's , economy's and nation's confidence. Internal competition within financial industry as well as external competition from outside is adding to pressures in financial sector across nations. Investment banking units of 'too large to fail' banks have fallen from echelons and has added to the gloom so much that banks such as UBS and Credit Swiss have been restructured drastically. Restructure in Swiss banks with pedigree of several centuries is a strong indicator of competition and macro-environment, drastic steps have added emphasis on operating efficiency as well as on derisking of portfolios. Profile of Risk and compliance functions have grown significantly as banks are driven to re-balance systems, processes and business models to meet stringent policies by central banks and Global financial support system.

While some banks have decided to concentrate on core strength by winding off non-traditional units some other banks target to de-risk the portfolio by expanding further across the globe in developing economies. These Global banks will be needed to adapt their Global models according to central bank's policies of nation in which they expand but adaptation will remain challenging since national policies remain fragmented across continents and nations.

Developed vs Developing Economies

 

In near future, World Banking index (if such index exists) shall lag World Stock indices since banks will bear major expense to adapt for new regulatory environment which will put pressure on RoE as well as RoCE. Though numbers might appear skewed since many private (India) as well as state owned banks (China) in developing economies are showing strong growth and healthy bottom line. However if we consider broad based numbers across the banking industry in India and discount for risk due to  shadow banking system in China then two economies don't stand that far away from global economy.

Wondering if this is right time to quit banking industry for good? What do you think?