Released by S&P Global Market Intelligence’s Financial Institutions Research Team, the report says excess liquidity created by government relief efforts and forbearance provided by U.S. banks will remain on their balance sheets for the foreseeable future. leaving bank margins below pre-pandemic levels for the next few years. In a tough earnings environment and a changing competitive landscape, some banks are struggling to modernize their offerings, while others are pursuing mergers in the face of daunting challenges. Mergers and acquisitions allow institutions to properly size their expensive branch networks, while making the necessary technological investments that allow more effective competition with fintechs.
“Emergency relief efforts during the pandemic have ruled out credit risk, but directly contributed to the pressure on US bank margins,” said Nathan Stovall, Senior Research Analyst at S&P Global Market Intelligence. “Banks have been forced to adapt to customers turning to digital channels as well as new competition from fintech and big tech companies. number of banks to review transactions. ”
The main highlights of the report include:
- Trillions of dollars in government relief efforts led to historic growth in deposits in U.S. banks during the pandemic, while loan growth has remained weak. The dynamics caused an estimate $ 3.72 billion excess liquidity to enrich bank balance sheets as soon as June 30, 2021, and excess funds are expected to remain higher $ 2.9 trillion until 2023 even as the economic recovery continues.
- In a difficult income environment, more and more banks looked to grow to invest in technology and reduce costs, which led to an increase in M&A activity. The aggregate value of U.S. bank M&A deals in 2021 has already reached the highest level since the global financial crisis, and strong transaction activity is expected to continue into 2022.
- Increased digital adoption and cost reduction efforts resulted in a record 2,414 net branch closures in 2020. The pace of closures accelerated in 2021, with a total of 3,609 net closures during the year. 12 month period ending August 31. Both of these trends are expected to continue as increased M&A activity allows for future technology investments and increased branch consolidation.
- Major fintech players have attracted massive capital and added new product lines and financial services features aimed at further anchoring customers to increase market share and improve profitability. Fintech companies in the United States have attracted nearly $ 7.5 billion in venture capital financing in the second quarter of 2021 through 194 transactions, up nearly 70% year-on-year.
Excess liquidity is expected to remain an obstacle for the foreseeable future
The S&P Global Market Intelligence 2022 Banking Industry Outlook is part of a “Big Picture Outlook” series published by the division’s research group that provides an overview of key trends and strategic opportunities. To learn more about this Big Picture Outlook research series, please visit here.
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S&P Global Market Intelligence’s FIG research team provides independent forecasting and real-time analysis of the banking, insurance and fintech industries, across multiple geographies, leveraging in-depth industry knowledge of its analysts. The FIG offering complements S&P Global Market Intelligence’s broad universe of research sector coverage, including energy, enterprise technologies, metals and mining, and TMT (technology, media and telecommunications).
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