Banks must reinvent themselves before next downturn – McKinsey

(Reuters) – A third of banks globally are unlikely to survive a serious economic downturn and must radically revamp their business models, management consultancy McKinsey said in a report on the industry on Monday.

A decade on from the global financial crisis, investor confidence in banks globally is also again weakening as margins tighten, and revenues and loan growth slow, the consultancy, which advises senior management on major strategic changes, said in the report.

“The industry in aggregate is not in great health, because 60% of banks don’t have returns that exceed cost of equity and we see that as a call to action,” said Kausik Rajgopal, a managing partner for McKinsey and one of the main authors of the report.

A prolonged economic slowdown with low or even negative interest rates could wreak havoc on the sector, the consultancy said, as it faces threats from a raft of small fintech startups and bigger technology companies looking to enter banking or payment businesses.

McKinsey said banks should invest in artificial intelligence-driven risk analytics, cut costs by outsourcing, and grow revenue by improving services for customers.

That should include careful investment, including in mergers and acquisitions, to prepare for digital disruption down the line and seek out new revenue sources, it said.

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