It has been just revealed the fact that bank profits have exploded all over the world due to interest rates. Check out the latest reports about this below.
Bank profits rise exponentially
According to a recent report by McKinsey, banks are experiencing their highest profits in ten years.
The rise in interest rates has allowed banks to increase their net interest margins and earn more on loans and mortgages, resulting in a global profit increase of approximately $280 billion for the industry.
“The recent upturn arises from the sharp increase in interest rates in many advanced economies, including a 500-basis-point rise in the United States. The higher interest rates enabled a long-awaited improvement in net interest margins, which boosted the sector’s profits by about $280 billion in 2022 and lifted return on equity (ROE) to 12% in 2022 and an expected 13% in 2023, compared with an average of just 9% since 2010.”
According to McKinsey, the banking industry’s net income has increased from around $1 trillion in 2021 to $1.3 trillion in 2022, and it’s estimated to reach $1.4 trillion in 2023.
This rise in profit comes despite the largest banks in the US experiencing months of deposit outflows. In Q3 of this year, JPMorgan Chase, Wells Fargo, and Citigroup saw $84.5 billion in deposits leaving, while Bank of America, Morgan Stanley, and BNY Mellon experienced $44.35 billion in deposit outflows.
McKinsey predicts that financial institutions will be influenced by four significant global trends in the future.
These include higher interest rates and persistent inflation, technological advancements, increased government scrutiny over alternative financial institutions, and changing geopolitical tensions.
“First, the macroeconomic environment has shifted substantially, with higher interest rates and inflation figures in many parts of the world, as well as a possible deceleration of Chinese economic growth. An unusually broad range of outcomes is suddenly possible, suggesting we may be on the cusp of a new macroeconomic era,” he said.
He continued and said the following:
“Second, technological progress continues to accelerate, and customers are increasingly comfortable with and demanding about technology-driven experiences. In particular, the emergence of generative AI could be a game changer, lifting productivity by 3 to 5% and enabling a reduction in operating expenditures of between $200 billion and $300 billion, according to our estimates.”
He also stated this: “Third, governments are broadening and deepening regulatory scrutiny of nontraditional financial institutions and intermediaries as the macroeconomic system comes under stress and new technologies, players, and risks emerge. For example, recently published proposals for a final Basel III “endgame” would result in higher capital requirements for large and medium-sized banks, with differences across banks.
He addressed the fourth element, the systemic risk which shifting in nature amidst rising geopolitical tensions.
