Financial Institutions Set For Change

Change management is defined as the methods and manners in which a company describes and implements change within both its internal and external processes.

The primary role of a traditional bank providing financing and capital is set to be challenged further in a post COVID-19 world by non-banks, which predicts that alternative providers of capital are set to become an even more important part of the global financial system.

In the last 10 years, aggregate lending in USD by non-banks has outstripped the pace of growth of traditional lenders, with non-banks seeing a compound annual growth rate of lending of 2.3%, compared to 0.6% CAGR for banks.

This trend is likely to accelerate as declining core capital ratios – caused by asset impairments resulting from the COVID-19 pandemic – will limit the lending capacity of banks, particularly in Europe.

Non-traditional sources of finance such as private equity, sovereign wealth funds, credit funds and governments themselves will need to step into the breach to finance the recovery and its aftermath.

In 2019, non-banks – including private equity funds and sovereign wealth funds – lent 41 trillion dollars compared to the 38 trillion dollars lent by traditional lenders.

In particular, the analysis shows that private debt has seen substantial growth, which is set to propel the asset class into a significant category of non-bank lending. Since 2010, private debt has been growing with 11% CGAR.

For insurers and asset and wealth managers, the challenges are equally daunting.

The report argues that a combination of near zero interest rates and the rise of digital-only players will create tighter margins across product portfolios, thereby emphasising the need to digitise rapidly, gain cost efficiencies and register real gains in productivity.

All of this will have to be completed as governments mandate more spending and reporting on ESG initiatives.

Those that fail to do so are likely to be caught in the wrong end of the coming wave of deals and restructuring.