According to new research, the banking industry is struggling as it approaches the end of the current economic cycle.

McKinsey’s annual global banking review reveals that almost 60% of banks are not generating the cost of capital/trading below book.

In addition, the figures show growth in volumes and top-line revenues has slowed with loan growth just 4% in 2017/18. Meanwhile, yield curves have flattened and investor confidence in banks has also weakened.

Chira Barua, McKinsey partner, said: “Given where many players in the banking industry are today, a serious downturn could be catastrophic for many. This is a ‘do or die’ moment. Whilst imaginative institutions are likely to come out leaders in the next cycle, others risk becoming footnotes to history.

“However, there are steps every bank can take today to change their fortunes and begin the next cycle on a stronger footing, but time is running out. Boards and management should actively consider strategic moves now instead of the cycle forcing it on them in a downturn.”

The report also warns that the bottom third of banks face disappearing if they do not reinvent their business models.

Digital disruption 

At the moment, the industry is facing rapid digital transformation with banks regularly undergoing technological changes to boost productivity.

There are indications that the economic situation will worsen in the coming period. As a result, banks globally are approaching this through reinventing business models and scaling up inorganically.

Kausik Rajgopal, McKinsey senior partner, said: “All banks can make bold moves now to prepare for any downturn and improve their fortunes in the next cycle. However, understanding the factors that distinguish between the world’s highest and lowest performing players is crucial.

“The report identifies four distinct archetypes, which banks around the world would broadly associate with based on the strength of the individual franchise and the constraints of its markets or business model: ‘market leaders’, ‘resilients’, ‘followers’ and ‘the challenged’. While all banks have common actions they can take, each bank archetype has their own specific late cycle priorities.”

The report aims to offer practical solutions for banks to improve performance and invest for the next cycle.