Deloitte analysis: Global banking system deals with uneven growth as it adapts to the digital transformation

The global banking system performs better than at any time in the past ten years, despite uneven growth, shows Deloitte’s 2019 Banking and Capital Markets Outlook. But profitability targets are challenged as the system adapts to the digital transformation, by the need for better data management, fintech integration and security, adds the analysis.

Consolidation could be a matter of survival for many banks, as they are facing a unique set of challenges such as structural deficiencies, overcapacity and low or negative interest rates, underlines Deloitte’s analysis. Numerous European banks have become smaller, retreating from international markets. On the other hand, the US banking system is robust, with efficiency ratios and other metrics such as the level of nonperforming loans being at their best.

Another challenge for the banking system is the safe integration of multiple digital functions across different areas of the enterprise. Banks will be spending billions of dollars in technology over the coming years to modernize their systems, platforms and tools and ensure superior security standards for data management.

“Romania is embracing the global trend, with many local banks engaging in digital transformation, realizing that this brings forth unmatched opportunities and capabilities for businesses, consumers, and investors. Local banks are currently facing real challenges in remaining profitable. For the first time, it is taxation, and not regulation, that raises concerns to bankers. The new tax regulations substantially increase the cost of all loans and create a double cost impact on distressed loans. Therefore, banks need to become agile in their business decisions and use innovation to drive efficiency and cost cutting. Automation can help banks reduce costs by 30-40% in targeted areas, including front, middle and back-office operations and shared services. We see more and more clients using innovation and artificial intelligence to increase risk management and compliance capabilities,” said Dimitrios Goranitis, Risk and Regulatory Advisory Partner, Deloitte Romania, who also leads Deloitte’s risk service offering in Central Europe focusing on banking regulatory strategy and supervision and credit risk transformation.

Deloitte’s 2019 Banking and Capital Markets Outlook also concludes that the digital revolution has developed and complicated the relationship between banks and fintechs. Using the innovative potential of fintechs in a safe and regulated environment is a balancing act for the global banking system.

The success of the banking system in the age of digital transformation depends heavily on how strategy, technology and operations work together. To this end, the analysis highlights the need for banks to get a better handle on data in order to extract the greatest value from technology investments. Although data is plentiful, it is often not easily accessible, clean enough, nor integrated. In order to reach maximal impact, banks plan to use digital technologies in 2019 in order to excel at data management, modernize core infrastructure, embrace AI and migrate to cloud technologies.

Deloitte provides worldwide audit, consulting, legal, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500 companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and high-quality service to address clients' most complex business challenges. Deloitte's goal is to make an impact that matters through its approximately 286,000 professionals.

Deloitte Romania is one of the leading professional services organizations in the country providing, in cooperation with Reff & Associates, services in audit, tax, legal, consulting, financial advisory, risk advisory, business processes and technology services and other related services with more than 1,200 professionals.