Weathering the Storm in UK Retail Banking

리서치사	Datamonitor
발행일	2009년 06월	상품코드	91097
페이지 정보	83 pages
가격	US $ 2,795 ￦ 3,330,200 PDF by E-mail (Single User License) US $ 6,988 ￦ 8,326,200 PDF by E-mail (Global Site License)

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Abstract

Introduction

The recent banking crisis has prompted calls for a tighter regulatory regime, which together with the harsher economic climate will force banks to adopt new strategies for cost-cutting and revenue maximization in order to safeguard their future.

Scope of this research

Addresses the impact of new regulation on UK retail banking.
Details the opportunities that exist for UK retail banks to achieve long-term cost-savings.
Highlights areas where banks can seek to grow revenue in the new environment.

Research and analysis highlights

An era of tougher regulation is approaching, which will have fundamental implications for the way in which banks operate. The extent of these changes will depend on how restrictive the new regulatory environment is.

There is therefore a renewed imperative for banks to seek out ways to reduce costs. Strategies that favor long-term over short-term cost-savings should be pursued.

Coupled with the necessity for cost-savings is a requirement for a focus on revenue growth strategies that favor a move away from the high-risk approaches of the past few years.

Key reasons to purchase this research

Gain an insight into which new regulatory measures are most likely to be introduced.
Identify key areas where costs can be saved while still promoting a customer-centric banking model.
Gain an insight into how the longer term strategies being used by banks can present opportunities for revenue growth.

OVERVIEW

Catalyst
Summary

EXECUTIVE SUMMARY

There has been a marked change in consumers' financial attitudes and behavior
A tougher regulatory regime will constrain the future activity of UK banks
UK banks will need to focus on cost reduction to help improve their margins
Opportunities do exist for banks to increase their revenues

THE IMPACT OF REGULATORY MEASURES

Datamonitor predicts the UK banking environment will remain risk-averse and conservative over the next five to 10 years
- Lessons can be learned from past mistakes in retail banking
- The current crisis is likely to result in a significant increase in the amount of regulatory intervention

Regulators are set to impose strong and potentially cumbersome regulation on financial institutions
- Each proposed regulatory reform has been scored on its likelihood of implementation
- The regulatory authorities are set to bring in a raft of macro-prudential measures
- Macro-prudential policy will be pushed to the forefront of new regulatory principles
- Micro-prudential measures for individual institutions are high on the agenda for regulatory reforms
- An overhaul of mandatory capital and liquidity ratios will restrict lending
- The current regulatory reform will lead to more international co-operation on regulation
- Increased regulation of cross-border activity will limit the number of foreign-based competitors in the UK
- Overzealous regulation could have a damaging impact on London as a major financial center
- Individual product regulation is generally seen as too distortive to be beneficial
- Individual product regulation is too distortive for it to be introduced effectively
- Regulators look set to come down hard on hedge funds and short sellers in an attempt to curb risk taking
- The current crisis has been blamed on excessively risky activities and hedge funds look set to bear the brunt of regulation
- More intrusive regulation and increased communication with consumers are other measures that regulators are keen to enforce
- Intrusive, direct regulation is an important change that will have a significant impact on banks

Consumer attitudes show a fundamental change in their views towards financial services providers
- Consumers are reducing the amount of credit they use
- Consumers are looking to save more and cut down on their credit card spending
- Consumers are aware of what they should be doing during the recession although it remains to be seen how many will reach their goals
- Consumers trust online price comparison sites more than banks and building societies

The future banking environment could vary significantly depending on the extent of the new regulation that is introduced
- Under a conservative scenario tight regulation makes life difficult for banks and consumers
- Under a liberal scenario banks will enjoy slightly more regulatory freedom, which should be beneficial for the economy

ACHIEVING SUSTAINABLE COST-SAVINGS IN A LOW-MARGIN ENVIRONMENT

The past actions of many retail banks have come back to haunt them
- Banks' behavior has drawn a huge amount of criticism
- Changing the minds of a cynical public will require prudency and a significant campaign of goodwill

Banks need to revisit their business models to improve cost efficiency
- The cost efficiency of all the major UK banks, except Abbey, deteriorated between 2007 and 2008

Crisis brings the opportunity for clear strategic gains
- A cost-saving strategy needs to be board-driven and all encompassing

Cost management should be targeted to where it will really make a difference
- Cost-savings efforts should be channeled appropriately so that they prove to be sustainable

Sustainable cost-savings must be the goal of a retail bank cost management program
- Staff should be involved in cost-cutting measures
- Significant cost-savings from process re-engineering are diminishing
- Combine green initiatives with cost-savings to improve company profile and raise staff awareness
- Outsourcing can be an important way to save on operational costs but it can be a sensitive issue
- Emphasizing outsourcing can detract from the need for better customer focus

There are opportunities for banks to bring the customer closer and achieve cost-savings
- Banks should utilize available technology to achieve cost-savings and stay in regular contact with their customers
- Banks can utilize technology to ‘go green' , save on costs and build a credible corporate image
- Banks can reduce costs by rationalizing the portfolio of products and services offered

A new model of retail banking has less branch staff but greater diversity in the range of work they are able to do
- Banks need to optimize their utilization of staff and refine service levels

OPPORTUNITIES FOR GROWTH IN A LOW-MARGIN ENVIRONMENT

Many banks have struggled during the credit crunch, but the more successful ones have found strategies to adapt
- The large UK banks have seen declining revenues whereas their Spanish counterparts have performed well
- Most of the largest European banks have seen significant drops in profit levels

A coherent strategic plan can lead to strong revenue growth for financial institutions
- Growth Strategy 1: international acquisitions in emerging markets
- Growth Strategy 2: develop a stronger offering in more marginal products
- Growth Strategy 3: focus on the core fundamentals of the retail banking model

Innovative tactics are a good shorter term method to target everyday consumers
- Growth Tactic 1: mirror the large high street retailers by offering discounts and ‘sales'
- Growth Tactic 2: promote a return to ‘careful' and ‘sensible' banking
- Growth Tactic 3: target profitable customers
- Growth Tactic 4: Invest in more face-to-face contact
- Investment in their branch network coupled with longer opening hours can further entice more customers

APPENDIX

Supplementary data for The Future of UK Retail Banking
Supplementary data for Achieving Sustainable Cost-Savings in a Low-Margin Environment
Supplementary data for Opportunities for Growth in a Low-Margin Environment
Definitions
- Credit default swap (CDS)
- Glass-Steagall Act
- Macro-prudential regulation
- Micro-prudential regulation

Methodology
Bibliography
Further reading
Ask the analyst
Datamonitor consulting
Disclaimer

TABLES

Table: Impact of potential macro-prudential regulatory measures
Table: Impact of potential micro-prudential regulatory measures
Table: The impact of cross-border regulatory measures
Table: GFCI index of top financial centers, 2007 - 09
Table: The impact of individual product regulation
Table: The impact of measures to curb excessive risk-taking activities
Table: The impact of other regulatory measures
Table: Lloyds TSB greenhouse gas emissions
Table: Lending to individuals, Q1 1988 - Q4 1996
Table: Lending to individuals, Q1 1997 - Q4 2005
Table: Lending to individuals, Q1 2006 - Q3 2008
Table: Household debt as a proportion of income, 1987 - 2007
Table: GFCI index of top financial centers, 2007 - 09
Table: Cost/income ratios of major UK banks, 2007 - 08
Table: Total advertising expenditure by UK banks, 2008
Table: Number of customers per retail branch, 2008
Table: The number of retail branches and customers by bank
Table: Revenue data for top 10 banks by market capitalization in April 2008
Table: Profit data for top 10 banks by market capitalization in April 2008
Table: Advertising expenditure, 2007 and 2008

FIGURES

Figure: The majority of respondents said that they plan to save more in the future
Figure: Most UK banks witnessed rising cost/income ratios between 2007 and 2008
Figure: With the exception of the Spanish banks, most banks saw profits decline or stagnate
Figure: Total lending experienced strong growth between 1992 and 2004
Figure: Household debt as a proportion of income fell away after the recession of the early 90s
Figure: The majority of consumers do not intend to use credit to fund their lifestyle
Figure: The majority of respondents said that they plan to save more in the future
Figure: The majority of respondents had saved more over the last six months
Figure: Banks and building societies rank among the most trusted financial institutions
Figure: Most UK banks witnessed rising cost/income ratios between 2007 and 2008
Figure: Total advertising expenditure by banks and advertising expenditure per customer, 2008
Figure: Citi uses texts to connect with customers based on their individually-defined criteria
Figure: HSBC' s virtual forest saves the bank money and appeals to green customer sensibilities
Figure: BNZ offers tailored packages to its customers from a limited range of products
Figure: There is a wide range of customers per retail branch in UK banks, 2008
Figure: Most banks experienced a drop in revenue in the six months to June 2008 compared to June 2007
Figure: With the exception of the Spanish banks, most banks saw profits decline or stagnate
Figure: Advertising expenditure on savings products increased sharply in 2008
Figure: The style of HSBC' s website is reflective of the overall economic situation in the UK
Figure: BNP Paribas has a variety of offers available to its customers
Figure: A large amount of the page is taken up advertising the current account
Figure: The Discover Motiva card has a number of special offers
Figure: BNP Paribas' s section for young people could drive future revenue
Figure: Lloyds lists the extra features available with each value-added account type