Big banks surf pandemic waves, competitive swells

Despite facing an array of competitive threats, some of the world’s biggest banks will come out of the pandemic stronger than they entered it, according to a new report from Moody’s Investors Service.

The rating agency said that the world’s 30 biggest banks, known as the global systemically important banks (G-SIBs), have faced growing threats, including fintechs and shadow banks challenging their dominance in core payment and lending businesses.

Additionally, the rise of innovative competitors is making it increasingly difficult and expensive to “recruit and retain staff and build a collaborative, innovative, client-centered culture given shifting workplace preferences […],” it said.

Nevertheless, the world’s biggest banks have their own significant competitive advantages, the report said.

“This group of banks have formidable defenses in the form of brand, trust, regulatory economies of scale and investable earnings,” said Peter Nerby, senior vice-president at Moody’s, in a release.

For some of these banks, these inherent strengths will allow them to emerge from the pandemic in an even stronger competitive position, it suggested.

At the same time, the capital and liquidity positions of the big banks have been bolstered by supportive monetary and fiscal policy, along with regulatory accommodations, and a disciplined approach to risk appetite and risk management at the banks, Moody’s said.

Looking ahead, Moody’s said the G-SIBs are expected to increase shareholder payouts in 2022 as regulators scale bank capital return constraints that were adopted at the height of the pandemic.

“While profitability varies across the group, diversification and scale of many G-SIBs should drive superior profitability again in 2022 and support through-the-cycle performance,” Nerby said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.