The banking sector of the UK has not experienced this rate of growth in more than three years, according to the most recent industry survey. One bank in every three is seeing increased business volume, and it couldn’t come at a more beneficial time. Only 9 per cent of banks saw volumes taper off. The survey was conducted by accountants PriceWaterhouseCoopers and the Confederation of British Industry (CBI).
Two of the popular High Street Banks seeing great success through the first half of the year are HSBC at seven billion pounds profit, and Barclays at four billion pounds in the black.
Ian McCafferty, the CBI’s chief economic advisor, commented on profit levels as well as growth. He feels that even though profits continue to rise at an acceptable rate, growth within the sector is slower than what his expectations were.
He has concerns as the future unfolds, saying, with revamped banking regulations combined with a slow economy, the industry could suffer.
He expanded on his thoughts about the near future, saying: “There is ongoing concern that prospective regulation may hold back business expansion in the coming year. But financial services firms have become more worried that weak levels of demand will dampen growth prospects.”
The UK banking leader of PriceWaterhouseCoopers, Andrew Gray, commented on how the success of the UK economy was the primary concern, saying: “While the banks are broadly in good shape, business is still constrained by the economic environment.”
Gray commented further on how important a good mix of products is important to being competitive, saying: “Competition is at the forefront of bank leaders’ minds and while new entrants do not rank as a high level threat, a renewed focus on product development and the marketing mix suggest a shake-up of market shares is anticipated.”
He continued to discuss avenues toward profitability, saying: “Concerns about demand are contributing to uncertainty with banks continuing to focus on cross-selling as a source of growth. That said, costs and nonperforming loans are under control and profitability is expected to rise.”
As profit levels are up within the sector, so is optimism. A significant number of firms are expecting profits to continue to rise, but reality will more than likely paint a different picture.
The financial sector is on quite a roll currently, as profitability is up a surprising fifth quarter in a row.
Despite banks seeing additional business and extreme cost cutting, profitability went unchanged over the last three months to September. This has some industry experts scratching their collective heads, after three straight quarters of growth.
Gray mentioned that banks actually expected more growth than what really came to be.
Steve Davies, head of retail banking at PriceWaterhouseCoopers in Scotland, commented on the outlook of many banks, saying: “The trend of gradual improvement is welcome, although banks remain generally cautious, particularly in retail. The recent improvement in commercial business is still below what is considered normal, and pressures to raise net commercial lending are, if anything, increasing. Furthermore the outlook for the retail business suggests more head- winds in the overall recovery of consumer activity in the economy.”
The CBI survey also pointed out how banks are more concerned with marketing as the Government is set to increase competition.
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