The Changing Future of UK Banking

Banking CentreHow UK Banks Are Changing

After years of bank bashing there is now a changing tone to UK banks. Since the financial crisis began to bite back in 2007 there has been little respite for the banking sector.

Downturns, defaults, bailouts, they have all been top topics and the banking sector has continued to be embattled.

So the question is, is the UK banking sector changing?

Less Anxiety In UK Banking?

Things seem to be changing. There is evidence that the concern over liquidity, lending and financial performance is starting to ease.

This does not mean things are getting easier, it simply means that the anxiety over losses, bad debts and liquidity is shifting.

The CSFI (Centre for Study of Financial Innovation) recently published their 2014 ‘Banking Banana Skins’ report. Shock horror, there are actually a few interesting changes highlighted within the report which could give some insight into how the UK banking sector is going to change as we move further into 2014 and 2015.

The Severity Ratings Are Changing

The CSFI survey looks at various areas of banking concern, the survey then looks at the ‘severity’ rating of each area. Severity relates to how much of a threat or concern each area is.

For the first time since 2005 the level of ‘severity’ has fallen and the average across all areas has fallen from an all time high in 2012. Good news.

The concern is that the risks themselves are moving. The financial climate is evolving, the risks vary from issues in the Eurozone and China, to governance, technology and pricing.

This graph shows the average severity ratings;

CSFI PWC Banking Survey

A few things jump out in this graph. Capital Availability and Risk Management are the lowest concerns. Regulation and Risk Interference are at the top.

Regulation and Political Interference are a concern for reasons different to how the public see them, for bankers there are concerns over how regulation is implemented across different borders, how it distracts management and how resources are applied.

The Public Misconception

If you listen to media reports, capital availability and risk management are improved through regulation and political interference. The big risk is that one distracts from the other, not works with it.

Put this in terms of running your own business. If you have one overriding concern in your business then where do you put your best resources? The risk to UK businesses is that the banks focus on their areas of concern, which is not where the UK business wants those resources to be.

Incidentally, profitability is in the middle. Ergo, it is not a concern of the banks. Interesting?

Banking Banana Skins

I love this report. It really puts things in perspective, it also calls a banana skin what it is. The report shows the top banana skins of UK banks, in brackets are the 2012 positions.

Banking Banana SkinsIf you want the highlights then;

  1. Credit Risk, Capital Availability and Liquidity have all fallen sharply
  2. Regulation and Political Interference have risen to number 1 & 2
  3. Social Media makes a new entry at number 20

What Does It All Mean For UK Business?

In short, the UK banks have less concerns about lending and have the cash to do so. They are holding back due to uncertainties about regulation or politically driven change. Plus, there is a realisation that the world is changing and social media needs to be adopted.

All in all, the banks are seeing a more positive world. The big threats are outside of the industry, is these ease then we may, may, be on the verge of normality once again.

By Dave Farmer

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