Banks globally recorded a $280 billion profit boost in 2022 on back of rising rates, making it the sector's best performance since the 2008 global financial crisis, said McKinsey & Co. said.
A series of interest rate hikes by central banks across the globe provided the biggest tailwind for the industry in over a decade. This prompted several lenders to announce billions of dollars in share buybacks, reported Bloomberg.
Though the return on equity jumped to 12 per cent in 2022 from an average 9 per cent since 2010, McKinsey struck a cautious note in its Global Banking Annual Review. “A return to ultralow spreads seems unlikely in the short term, but the outlook for net margins remains uncertain," it said.
Banks also face an increase in competition with transactions increasingly moving to non-traditional institutions that are less regulated than lenders, the report said.
More than 70 per cent of the net increase in funds was held by insurance and pension funds, sovereign wealth funds, private capital and alternative investments rather than banks between 2015 and 2022.
“While the growth of assets under management outside of banks’ balance sheets is not new, our analysis suggests that the traditional core of the banking sector — the balance sheet — now finds itself at a tipping point," the report said.
In continuity of this trend, governments are broadening scrutiny of non-traditional financial institutions as the macroeconomic system comes under stress.
The report said there is a divergence in performance of financial institutions. Those in the region around the Indian Ocean are home to half of the best performing banks, while those in Europe and the US as well as China and Russia, have struggled to generate their cost of capital.