World's biggest wholesale banks face slowdown in growth, warns Bain & Co.

With the end of ultra-low interest rates and cheap money, the largest wholesale banks are facing a slower pace of growth, which could turn negative according to a new report.

Bain & Co.’s projections show that average annual revenue growth could slow to 2% or less (CAGR) in 2023-2025, from 8% in 2019-2022 with the worst case projections showing minus 2% as the post-pandemic uptick in income and returns runs out of steam.

Even if central banks cut interest rates, the firm sees a weakened outlook for banking revenues alongside requirements to invest heavily in modernizing and upgrading their technology.

The report is based on responses from around thirty CEOs and senior executives at large wholesale banks which found that slightly above half believe prospects for the industry are only average with headwinds expected to impact performance, especially in Europe.

However, the good news is that with the right strategies banks can beat competitors and position themselves to capitalize on new and emerging revenue sources.

"The macro-driven boom times fueled by ultra-cheap money are over. Achieving further growth and sustained outperformance versus competitors will be more difficult in the future – but it is achievable for those wholesale banks which commit sufficient resources and make the essential, smart choices around AI, technology, talent, and products that resonate and have impact in climate- and carbon-related markets that will be critical for the future," said Carsten Baumgartner, partner in Bain's financial services practice.

THE OPPORTUNITIES

Bain estimates that climate-related financing could be worth $1.4 trillion in annual incremental financing globally in the period to 2030, with $550 billion of this addressable by wholesale banks, which could generate a $37 billion annual revenue poll.

Generative AI is cited by 72% of respondents as transformative for wholesale banks’ business and operating model, although just 24% said their organization is positioned to unlocked its potential.

Boosting their digital assets usage such as blockchain infrastructure and tokenization may improve and transform operating efficiencies.

Ensuring they have the best talent and meeting evolving employee expectations will also be a key focus for banks, with respondents noting the urgency of gaining the right talent to help ensure improved future performance.