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Insights from experts at the FT’s Global Banking Summit chart a course for banks to thrive in 2024 amid divergent performance, political uncertainty, and rising customer expectations.

As 2023 draws to a close, the banking industry finds itself at an inflexion point. Global economies face an uncertain year ahead with significant elections, leadership changes, and simmering conflicts that could boil over. Central banks continue wrestling with record inflation while trying to avoid recession. Technological disruption accelerates across financial services. How should banks position themselves to thrive amid the turbulence? 

At the end of November, I participated in the Financial Times Global Banking Summit 2023, sharing the stage with esteemed colleagues, including industry veteran Bob Diamond, Lazard’s Chief Operating Officer, Alexandra Soto, and Colin Hunt, AIB Group Chief Executive Officer. Our panel discussion spanned critical themes facing banks in 2024 – from macroeconomic and political headwinds to bank performance variability, cost pressures, digital imperatives, and customer expectations. 

Here, I distil our collective insights on navigating the choppy waters ahead and capitalising on potential opportunities.

Cautious optimism on rates and growth

I expect interest rates to peak in the first half of 2024 and then moderate later in the year as cracks appear in the global economy. My fellow panellists shared a similarly subdued growth outlook mixed with measured policy optimism. 

However, Colin cautioned we may see policy errors akin to late-cycle banking mistakes if central banks miscalculate rate moves. Overly aggressive hikes could trigger a recession, while premature easing may re-ignite inflation. Therefore, calibrated fine-tuning is essential.

Further, Alexandra warned that a severe economic slowdown could spark collateral value adjustments and volatility, especially in illiquid markets like commercial real estate. Distressed opportunities may arise for alternative investment managers if conditions deteriorate markedly.

So, while I remain hopeful policymakers can orchestrate a soft landing, risks abound on both sides. The trajectory rests considerably on several pivotal elections and events next year.

Political wildcards with global reverb

Indeed, 2024 promises no shortage of political theatre with possible leadership changes and closely fought elections spanning major economies, with the United States presidency and, likely, the EU election in June 2024 to be contested. 

Intensifying hostility between the US and China over Taiwan’s sovereignty, President Vladimir Putin’s future in Russia, Middle East stability hinging on Israel-Gaza tensions, and a combative US presidential race could all shape economic conditions profoundly.

As Colin observed, such political uncertainty will further constrain global growth. However, Alexandra noted some upside from pent-up M&A demand if markets stabilise post-elections. Valuations may also realign more reasonably between acquirers and targets.

Still, sizeable imponderables exist around policies and priorities for leading world governments by the end of 2024. And markets loathe unpredictability. Banks, then, must prepare for market gyrations impacting trading revenues and credit conditions.

Uneven bank performance  

Given the precarious economic and political environment ahead, I anticipate divergent bank performances globally based on business mix and regional exposure.  

For instance, higher net interest margins could continue boosting US retail and commercial banks in 2024 as rates potentially climb further before easing later in the year. Firms like Bank of America and JPMorgan, with dominant retail deposit franchises, may profit, according to Bob. 

European investment banks seem set for another disappointing year as volatile debt and equity markets subdue issuances or trading activity. Bloated costs and digitisation needs weigh heavily on institutions like Deutsche Bank and Barclays amid anaemic top lines.

The universal banking model holds stronger appeal for weathering unpredictable conditions, though. Global giants like HSBC or large US banks can balance exposures across banking and market activities. Their geographical diversity also helps smooth regional fluctuations.

Beyond bank type, US institutions generally appear better positioned than European counterparts for 2024.

Cost pressures intensify

While higher rates may buoy profits temporarily at some banks, underlying cost issues plague nearly all. Bulging operating expenses driven by tech investments or redundancies have alarmed investors. Almost every European bank plans retrenchments while US banks slow hiring.

Legacy real estate and branches burden European banks mainly. As Colin admitted, right-sizing physical infrastructure remains challenging in the long term for institutions like AIB. Yet, massive technology spending also concerns investors without more apparent returns. So many banks now face the paradox of desperately needing digital innovation to retain competitiveness while scrutinising outlays or headcount bloat warily.  

I expect most banks to prioritise cost discipline in 2024 by curtailing discretionary tech expenditure and accelerating automation. Leaner operations can then better weather macro-turbulence.

This shift towards value-driven technology adoption will drive collaboration between banks, fintechs, and hyperscalers. So there is an element of banks trying to co-create and co-innovate with the broader ecosystem, and that that needs to be carefully managed.

However, short-term savings shouldn’t trump smart selective technology bets that serve longer-term competitiveness. Admittedly, it’s a delicate balance to strike – but here’s where an expert consultant, such as Cognizant, adds value.

Meeting rising customer expectations  

While banks urgently address internal inefficiencies, customer behaviour evolves fast outside. Growing data analytics penetration across financial services, from robo-advisory to personalisation, raises consumer expectations.  

In 2024, predictive insights, conversational interfaces, micro-customised loans, and AI-guided investments could become table stakes for retaining customers, especially Millennials and Gen Zers – the leaders and big money-makers of tomorrow. Legacy institutions lacking cloud-native tech stacks may struggle to deliver these tools economically.

I anticipate incumbent banks will pursue open-banking partnerships, “platformification”, Banking-as-a-Service models, and embedded finance to help bridge experience gaps cheaply. While co-creating alongside fintech or big tech could enable faster innovation, the costs require vigilant governance.

Opportunities amid adversity  

Despite manifold worries on the horizon, smart banks can thrive in 2024 by combining defensive safeguards with offensive initiatives.

While bracing operations for turbulence through cost discipline and risk moderation, banks should prepare capital to seize opportunities when conditions improve. Whether participating in M&A revivals, snapping up distressed assets, or leveraging analytics for hyper-personalisation, those who position prudently today can invest boldly tomorrow.

Ultimately, banks face testing times ahead. But uncertainty often creates possibilities for those ready to respond decisively. The banking industry has demonstrated resilience in 2023. As we move into 2024, banks must focus on cost optimisation to enhance agility and capitalise on potential revenue growth. Diversifying revenue streams beyond traditional interest income and leveraging technology to streamline regulatory compliance will be crucial for banks to thrive in the evolving financial landscape.

John Da Gama-Rose

Head of Banking & Financial Services, Global Growth Markets, Cognizant

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