Thriving On Disruption

The banking industry’s leading lights have largely adjusted their business plans to a world of tighter regulations, higher capital requirements and less leverage. Now, they are taking on new competitors by embracing the very information technology that has disrupted their business.

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From mobile wallets to big-data analytics, the market leaders in the banking industry are effectively turning disruption into opportunity. “The ability to analyze more data, more quickly and with more predictive capabilities can ensure a faster, more targeted and more forward-looking response to consumer demands,” says Kevin Burrowes, global banking and capital markets leader at PwC. The firm found in its latest annual survey of financial executives that banks are quickly capitalizing on technology to tap into new value chains and make their operations more efficient.

The Middle East and Africa will experience the fastest growth globally in the use of mobile phones to make payments in the next four to five years, according to P&S Market Research. Until recently, the Asia-Pacific region has dominated the global mobile-wallet market, it says.

“The increasing advancements in next-generation high-speed mobile networks known as Long-Term Evolution (LTE) are expected to change the landscape in the Asia-Pacific, as the developing countries of the region are leading the race to implement the 4G technology,” P&S says in a recent report. In Latin America, heavy consumer spending in Brazil is driving the mobile-wallet market, it says.

Meanwhile, geopolitical events, slowing global growth and tight margins are creating a challenging environment for banks in many markets around the world. Weak commodity prices have undermined growth in Latin America and Africa in particular, leading to a retreat by global banks from those regions.

In general, banks that focus on commercial banking and generate a greater share of their income from interest tend to be more efficient than universal banks, which also offer investment banking and wealth management services, according to S&P Global Market Intelligence. In a study of banks with at least $10 billion in assets, the firm found that, on average, cost-to-income ratios were the lowest for banks in Egypt and highest for banks in Brazil. There were wide variations, however, across regions as well as within countries.

Banks in the developed countries are in varying states of health. Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, said in a recent speech that the condition of the US banking industry is much improved, and that the insured institutions are in a much better position to handle uncertain conditions than they were in the past. If the Federal Reserve goes ahead with the two rate hikes it expects to implement this year, the banking industry in the US should benefit.

In Europe, however, where interest rates are negative and GDP growth is slow, the banking industry’s overall profitability has been poor. The European Central Bank introduced a series of low-cost funding programs to encourage banks to lend, but there is little demand for credit in a slow-growing economy.

In this, our 23rd annual survey, Global Finance has identified the best banks in 145 countries and eight regions. The winners are not necessarily the biggest banks, but rather, the best— those with the qualities that corporations should look for when choosing a bank.

In selecting the winners, we relied on input from industry analysts, corporate executives and banking consultants, as well as information submitted by the banks, and research by Global Finance’s reporters and editors. Our selection criteria included growth in assets, profitability, strategic relationships, customer service, competitive pricing and innovative products. In addition, a poll of Global Finance’s corporate readership was conducted in order to increase the accuracy and reliability of the results. We used a proprietary weighted algorithm to make our final decisions.