The Private Banking sector, according to McKinsey (consulting firm that operates globally), is witnessing a sharp slowdown compared to the past: in fact, the expected average annual growth is around 6%, down from the 8% recorded between 2008 and 2015. This slowdown is all the more evident in Western Europe, where growth forecasts are reduced to 4%. This despite forecasts indicating that in nine years (from 2016 to 2025) the wealth of individuals who hold financial assets exceeding one million euros (High Net Worth Households - HNWI) will almost double (from 59 trillion to 101 trillion euros EUR),
Notably, in 2016, the Western European Private Banking sector offered disappointing performances in terms of both growth in managed assets (assets under management - AuM) and profitability. During the year, aggregate revenue from asset management of high net worth clients declined for the first time since 2009 – down 10% from 2015 – on the back of limited growth in AUM, equal to only 3% and a reduction in profit (down by 3 basis points (bps) compared to 2015, for an overall decrease of 13%).
Banks' cost management actions did not compensate for the significant reduction in the profit margin: due to the low interest rate and reduced intermediation activity, the revenue margin fell by 4 bps compared to 2015, the largest decline since 2008.
These results are a major alarm for Western European private banks. Business models require significant changes to address a number of unfavorable market trends, such as: macroeconomic uncertainty and market volatility, regulations that increase transparency requirements, customer requests to obtain more added value from their intermediaries finance, accelerating the impact of digital products and services.
The combined impact of these trends is still uncertain, but given their speed, scale and pressure on revenues, Western European private banks will need to be prepared and go beyond just improving margins. The most successful private banks in the region have taken a number of actions to generate higher and more sustainable levels of profit:
– A clear value proposition and delivery model for each customer segment
– Omnichannel offer for hybrid customers and digital initiatives on selected markets for some companies
– Transforming frontline practices to defend and grow revenue base
– Redesign of cost structures and operating models from scratch
– Improved organizational health through rigorous performance measurement
The effort required will vary depending on each institution's starting point, but restoring and sustaining growth and profitability will require decisive action over the next two to three years.
In contrast to the situation in Western Europe, some regions will witness a broader expansion of assets: Asia expects growth of 10% annually, while Latin America and Central Europe, growth of 9%.
