Joy Macknight

With the global economy on the brink of recession and more market volatility expected, the global banking industry is bracing for another challenging and unpredictable year.

Happy new year and here’s to a year of prosperity and success for all our readers.

We have taken the opportunity of this occasion to launch a redesigned newsletter to deliver fresh content to your inbox – if you haven’t already, you can sign up to the newsletters here.

This will be a year of change for The Banker. In addition to our new-look newsletters, we will be increasing our online-only content, including more news analysis articles, data stories, podcasts and videos.

We have kicked the year off with our special Davos issue. Several leading lights have penned opinion pieces on the hot topics that will be under discussion at the World Economic Forum (January 16-20), including:

Our January cover story looks at how voluntary carbon markets will aid in the shift to a net-zero global economy by enabling companies to offset certain emissions during the transition, as well as channel investment towards climate-positive initiatives.

Despite being just a few days into the year, there remains much trepidation in the industry as to what 2023 will hold.

Many of the macro headwinds from 2022 have bled into this year, including rising inflationary pressures, changing interest rates, geopolitical tensions, and the threat of recession. A third of the world will be in recession this year, according to Kristalina Georgieva, managing director of the International Monetary Fund (IMF). While not all economists concur on how these challenges will play out, all seem to agree that these will continue to be the major trends shaping the global economy in 2023.

What will this mean for the banking industry? According to McKinsey’s Global Banking Annual Review 2022, it could make the industry’s return on equity (ROE) dip to around 10-11% in 2023, after ROE saw a slight improvement in 2022. McKinsey analysts looked at two scenarios: inflationary growth and recession/stagflation. While both scenarios are expected to be positive for banks in the initial stage, when the full effects of the scenario kick in banks could see three effects – a slowdown in volume growth, higher costs and greater delinquencies – all of which will hamper their profitability.

Despite these headwinds for the industry, the McKinsey report suggests specific actions that can equip banks for the short-term challenges and the longer-term imperatives, such as:

  • Take bold steps now to build short-term resilience – financial, operational, organisational, and digital and technological; and
  • Lay the groundwork for long-term growth, such as fostering highly differentiated customer relationships, developing proprietary data and insights on sets of customers, and developing a strategy around environmental and social transformations.

In the final few weeks of the year, our inboxes are flooded with predictions for the next 12 months. Over the past decade or so, one that always piques my interest is Saxo’s Outrageous Predictions. This year it is all about the “global war economy, with every major power shoring up their national security on all fronts, whether militarily, or in a financial and supply chain sense”, according to Steen Jakobsen, chief investment officer at Saxo.

Here are just four of the 10 predictions:

  • The UK holding an UnBrexit referendum;
  • Widespread price controls being introduced to cap official inflation;
  • OPEC+ and “Chindia” walking out of the IMF and agreeing to trade with a new reserve asset; and
  • A tax haven ban which kills private equity.

Time will tell how outrageous these actually are.

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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