According to McKinsey, the consulting firm based in New York, the fragility of these financial institutions is because of the low-interest-rate environment and the concerns for growth forecasts.
Nearly one out of every three banking establishments in the world is likely to go out of business in the coming months. This is the conclusion without doubt by McKinsey in a study revealed on Monday by Les Echos. The consulting firm, which looked at the situation of 1000 banks in the world, estimates more precisely that 354 establishments are threatened with extinction in a couple of months.
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Ten years after the financial crisis, these banks find themselves in a delicate situation. Their fragility is observed in their average profitability which reaches only 1.6%. The strongest banks are ten times better. More than 40% of the banks threatened with extinction are located in ” the developed countries of Asia ” and 37% are in Western Europe, underlines the study.
Uncertain growth prospects
The consulting firm points to several factors. The first of these is the environment of low or even negative rates, which weighs on the incomes of banking institutions. To cope, banks have relied on volumes by granting massive loans. A risky strategy that could prove disastrous in the event of a turnaround. Payment incidents could then multiply, jeopardizing the survival of the bank.
But McKinsey is seeing a slowdown in global growth. And the following does not look good. The International Monetary Fund (IMF) has once again lowered its forecasts, with world GDP up 3 %. The fall meetings of the IMF and the World Bank ended on Saturday, October 19, on a new alarmist note with the head of the European Central Bank (ECB) Mario Draghi saying:
” The international environment continues to pose considerable risks, with the further escalation of trade tensions and rising geopolitical risks,”
Banking sector job losses
Conscious of the stakes, the banks have already begun their process of rationalization. And the potion is bitter. In 10 years (2008-2018), already 600,000 banking jobs have been lost only in Eurozone. The first German bank, Deutsche Bank, has announced this summer that it will cut 18,000 jobs worldwide by 2022 as part of a € 7.4 billion restructuring plan.
According to McKinsey, banking institutions have no choice but to refocus their activity on certain trades. Just like Deutsche Bank, which will close down almost all of its equity-related activities.
” Banks must now focus on their core business, ” warn the authors of the study.