The banking industry in Europe may return to moderate revenue growth in 2015. The long period of contraction in corporate lending volumes is likely to end while lending to households should increase somewhat. The deposit business may continue to face significant pressure from extremely low interest rates. Loan loss provisions could continue to normalize; on the cost side, however, banks face new increases due to necessary investments in digital platforms, modern branch networks and stronger internal control functions.
Banks' revenues could prove relatively stable in the U.S. Here too, any increase in net interest income driven by higher lending volumes is likely to be partially offset by lower interest margins. The struggling deposit business could benefit from the expected interest rate turnaround. On the other hand, there are many signs for a trend reversal and, hence, a return to higher loan loss provisions, rising from an extremely low level.
In global investment banking, a moderate recovery seems possible overall, led by the equity and some debt capital markets segments on the back of an improving macro economy and higher volatility. However, the outlook for some higher-margin segments such as securitization, high-yield bonds and emerging markets is rather negative due, among other things, to the collapse in commodities prices. The outlook for M&A advisory is mostly favourable.
Asset management could benefit from stronger economic growth in Europe and the U.S. in 2015 as well as continued high valuations on the capital markets. In both regions, the performance of the securities markets will, in all likelihood, continue to depend largely on central bank policies and may be subject to substantial volatility. A turnaround in the Federal Reserve’s interest rate policy should lead to a moderate rise in bond market yields.
As for regulatory and supervisory changes, the focus in Europe will be on fully establishing the single supervisory mechanism and the gradual implementation of rules for the orderly recovery and resolution of failed banks as well as the implementation of the Basel 3 liquidity coverage ratio (LCR). Another key issue will be the various bank levies and contributions towards resolution and deposit insurance funds. Decisions will probably be made on the so-called bank structure reform and the financial transaction tax. Finally, proposals for the creation of a European Capital Markets Union may become more specific. In the U.S., the system of mortgage financing or the repo market could see reform. Globally, the debate on the introduction of new requirements on Total Loss-Absorbing Capacity (TLAC) and the nominal leverage ratio will be of great importance. European and U.S. banks alike will therefore probably increase their capital ratios further. Litigation- and enforcement-related charges are expected to remain a significant issue.