Business & Economy

EY: Banks need to incorporate a five-step approach to improving profitability

13 April, 2017

* 60% of banks plan to invest in new technologies as market challenges persist *

While only 11% of banking executives expect their financial performance to improve significantly over the next 12 months, the majority of banks (60%) are investing in new customer facing technologies, according to the EY Global Banking Outlook 2017.

Managing reputational risk and meeting regulatory compliance and reporting standards were the two priorities for banks overall, showing the continuing need to balance risk management and building tomorrow’s growth engine.
The survey of senior executives at almost 300 banks across Europe, the Americas, Africa and Asia-Pacific identified two priorities for growth in the sector: recruiting and retaining talent and investing in new customer-facing technology.
The report encourages banks to do less, streamlining operating models and partnering with Fintech, blockchain firms and other industry disruptors to deliver better services, and to be relentless in driving out costs and managing risks that help protect the organisation.
“Banks are reassessing their growth strategy and identifying new methods to achieve meaningful profitability,” said Savvas Pentaris, Head of Financial Services at EY Cyprus.
“Now more than ever, we see the industry reaching a crossroads where banks must balance innovation, optimisation and efficiency to satisfy all stakeholders.”
Banks need to focus on improving five specific areas inside their organisations according to the survey:
Reshape – The banking industry will coalesce around four primary business models: local boutiques, global boutiques, regional champions and universal super banks. Banks must pick one and then restructure operations accordingly.
Control – Banks need to strengthen their three lines of defense risk management approach by improving efficiency, strengthening focus on vendor management and creating simpler supply chains.
Protect – Banks need to minimise internal and external threats by putting legacy issues in the past and demonstrating they have systems in place to prevent money laundering and financial crime. They also need to prepare for cyber-attacks and future outages.
Optimise – The operating cost-to-asset ratio for banks has barely moved in the past five years. Banks need to shift to a forward-looking effort to embrace technology and drive “next-generation efficiency” in expense management to make progress.
Grow – Banks need to invest in staff and technology to support innovation to defend market share and work to ensure that they remain competitive as customers become more willing to use financial products offered by non-traditional partners.
“Banks need to develop strategies in all of these areas. Innovation will play a significant role in the successful execution of these strategies. Banks must surely look for new ways to operate their business and deliver against client expectations,” explained Charalambos Constantinou, Head of Advisory Services at EY Cyprus.