Disruptions to the energy and food supply, related to the war in Ukraine, are contributing to inflation and putting millions of livelihoods at risk. These include steep declines in the Chinese property market and the sharp devaluation of fintechs and cryptocurrencies, including the bankruptcy of some high-profile crypto organizations. Soaring inflation and the likelihood of recession are sorely testing central banks, even as they seek to rein in their quantitative-easing policies. Five resulting shocks are affecting banks globally: The longtail effects of the COVID-19 pandemic are still being felt, and the Russian invasion of Ukraine in February 2022 and heightened tensions over Taiwan marked the rude return of geopolitics as a disruptive force. Lingering effects of COVID-19 and geopolitical tensions are roiling the financial sector For now, the banking system globally is sitting comfortably on Tier 1 capital ratios between 14 and 15 percent-the highest ever. This growth was propelled by a sharp increase in net margins, as interest rates rose after languishing for years on their cyclical floors. Now a series of interrelated shocks-some geopolitical and others lingering economic and social effects of the pandemic-are exacerbating fragilities.īank profitability reached a 14-year high in 2022, with expected return on equity between 11.5 and 12.5 percent (Exhibit 1). For banks, 2022 has been a tumultuous year of shocks and growing uncertaintyīanks rebounded from the pandemic with strong revenue growth, but the context has changed dramatically. Despite lingering skepticism and concerns about greenwashing, we find strong evidence suggesting that climate-related financing is entering a “next era,” as the initial surge of funding for renewable energies gives way to a deeper engagement with banking clients across all sectors. In this year’s Global Banking Annual Review, we take a closer look at the roller-coaster ride banks have been on over the past months, the growing divergence between banks with different profiles in different countries, and the factors that make the best performers stand out.Īt a time of growing corporate and government commitments to reduce greenhouse-gas emissions, we also shine a spotlight on sustainable finance, a much-discussed theme in banking. Banks overall continue to trade at a steep discount to other sectors, a reflection of the fact-confirmed once again in 2022-that more than half of the world’s banks earn less than their cost of equity. One thing didn’t change, however: valuations. Special Report Global Banking Annual Review 2022: Banking on a sustainable path (46 pages)įirst the pandemic, and now inflation, war, rising interest rates, supply chain disruption, and more: for banks globally, the combination of macroeconomic volatility and geopolitical disruption in 2022 overturned many assumptions and ended more than a decade of relative stability.
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