Four Global Trends Shaping the Future of Financial Institutions
The future of financial institutions will be heavily impacted by four major global trends, according to the 2023 Annual Banking report prepared by global consulting firm Mckinsey & Company. These trends include significant macroeconomic changes, continued technological advances, intensified regulatory scrutiny, and changes in systemic risk due to rising geopolitical tensions.
The report indicates that the macroeconomic environment has undergone substantial changes, with higher interest rates and inflation figures in many parts of the world, as well as a potential slowdown in economic growth in China. Technological progress continues to accelerate, with generative AI technology driving increasingly demanding customer experiences that have the potential to increase productivity by 3 to 5% and reduce operating expenses by up to US$300 billion.
In response to these changes and challenges, Antonio Novas, a partner and territorial manager of Mckinsey & Company in the Dominican Republic, stated, “The banking industry is at a crucial inflection point. The ability to adapt to these changes and embrace technological innovation will be fundamental for the continued success of financial institutions in an increasingly dynamic and competitive world.”
The report also highlights a period of recovery and unusual growth in the last 18 months, thanks to an increase in interest rates in many advanced economies. The report predicts a return on equity targeting 13% by 2023, compared to an average of 9% since 2010. This has led to a redefinition of the banking sector, with significant implications for the way banks operate and compete.
Furthermore, the report suggests priorities for financial institutions as they seek to reinvent themselves and prepare for the future. These include making balance sheets more flexible, scaling or exiting the transaction business, and advising clients directly and indirectly through integrated platforms to manage technological and regulatory risks.
In the Dominican Republic, the Ministry of Economy, Planning and Development (MEPyD) reported a slight decrease in the active interest rate in the financial system, following measures adopted by the Central Bank of the Dominican Republic. Despite improvements in interest rates for loans and products, the process continues to slow down.
Overall, financial institutions will need to adapt and innovate to stay competitive in the face of these global trends and challenges.