This week, leading professional services provider KPMG released a report that assessed the performance of the banking sector in 2014.
While the annual report found that pre-tax profits among Britain’s five biggest banks had increased significantly, it also noted that return on equity could be improved. In summary, the results indicate clear signs of recovery, but also imply banks need to work harder to become more profitable. With so many different strands to the report, what should we make of it all?
62%
The percentage that Barclays, RBS, Lloyds, HSBC and Standard Chartered saw their pre-tax profits increase by in 2014
Soaring profits
Writing for the
International Business Times, Sean Martin highlights some clear positives.
“Britain's biggest banks are seeing their profits soar as they show signs that they have returned to their pre-financial crisis levels,” Martin notes. He points to a key finding in the report, which reveals that pre-tax profits among Britain’s five biggest banks (Barclays, RBS, Lloyds, HSBC and Standard Chartered) rose by 62% to £20.6bn last year.
The report also shows that banks have cut costs considerably in the last year, and have made an evident effort to engage in less risky activities, he writes.
International Business Times story
Conduct costs Business Insider UK’s Lianna Brinded takes a different view of the report’s findings.
Focusing on KPMG’s critique of the banking sector, Brinded notes that the five lenders in question have paid a collective £38.7bn in fines and remediation costs since 2011.
Half of the costs related to financial scandal remediation went towards compensating victims of the misselling of Payment Protection Insurance and interest rate hedging products, she writes.
“Meanwhile, KPMG said that the impact of conduct costs is exacerbating the banks' need to cut spending and restructure their units to cover its cost of capital,” Brinded explains. “None of the banks surveyed achieved a return on equity of more than 8%, compared with an average 11.6% in 2009.”
Business Insider UK piece
Driving digital
But these issues can be remedied, according to
City A.M.’s Tim Wallace. Harnessing the power of digital will help banks cut costs and deliver steady returns on equity.
“One way to cut costs and improve customer service could be increased investment in new technologies, providing digital services where possible,” Wallace writes.
He points readers to a section of the report that claims: “Banks have not yet harnessed the power of digital or understood how it can be a positive disruptor.” Lenders could use new technology to bring disparate information together more seamlessly and provide customers with better banking, Wallace argues.
“And that better service is crucial,” he adds – particularly in light of the £38.7bn sum that covered remediation and conduct costs between 2011 and 2014.
City A.M. coverage
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