McKinsey & Company recently unveiled its highly-anticipated 2023 Global Banking Annual Review, offering a detailed analysis of ongoing transformations in the banking sector. The report offers valuable insights into the industry’s evolution, termed the “Great Banking Transition” by McKinsey, marked by shifts in balance sheets, transaction dynamics, and distribution strategies. This transition has propelled the rise of capital-light non-traditional institutions and emerging sectors.
One of the report’s standout findings is the remarkable resurgence of global financial institutions, currently experiencing their most profitable period in over a decade. In 2022, these institutions collectively managed assets totaling a staggering USD 400.0 trillion and generated revenue amounting to USD 6.8 trillion.
This robust recovery was primarily driven by improvements in net interest margins, boosting the sector’s profitability by approximately USD 280.0 billion in the same year. Consequently, the return on equity (ROE) reached 12.0% in 2022, with expectations of it climbing to 13.0% in 2023, surpassing the 2010 average of just 9.0%.
Africa’s banking sector emerged as a standout performer, recording net profits of USD 22.3 billion in 2022, with consistent annual growth of around 8.0% since 2021. Africa also outperformed the global trend by achieving an ROE of 15.0% in 2022, projected to rise to 16.0 in 2023. This success story was partially attributed to higher interest rates across the continent, which brought an end to years of margin compression. Kenya’s banking sector, in particular, showcased impressive figures, with profits of approximately USD 1.5 billion in 2022 and a robust ROE of 19.0% in both 2022 and 2023.
A notable aspect of this global banking transformation is the growing concentration of banking growth in specific geographic regions. The “Indo-Crescent” region around the Indian Ocean has become a dynamic epicenter for financial institutions, housing 8.0% of global banking assets and a remarkable 51.0% of the world’s top-performing financial institutions. This region includes advanced economies like Australia and Singapore, as well as emerging markets such as Kenya, Mozambique, and Tanzania. Various factors contribute to this dynamism, including economic growth, innovative disruptions, strategic partnerships, ecosystem development, and cost-efficient service delivery facilitated by fintech companies and telecommunications providers.
Carolyne Gathinji, an associate partner at McKinsey’s Nairobi office, emphasized, “Kenya has become a testing ground for a deeper reinvention of banking.” The impressive performance in Kenya can be attributed to several factors, including higher GDP and population growth, disruptive innovations, collaborative partnerships, ecosystem-based strategies, and cost-effective service delivery models facilitated by fintech companies and Telcos.
Furthermore, the report highlights the significant growth of banking sectors in Asia, Latin America, the Middle East, and Africa, outpacing their counterparts in developed markets. This trend is expected to persist in the years ahead, with Kenya, known for its adaptability to digital technologies, poised to play a significant role in this global success story.
Carolyne GathinjI stated, “The years ahead will be very exciting for institutions that can re-examine their businesses and identify relative competitive advantages in optimizing their balance sheet given regional scale, facilitating swift transactions, and implementing even lower-cost distribution models.” McKinsey & Company’s 2023 Global Banking Annual Review provides a comprehensive view of the evolving world of banking and the promising future awaiting those ready to embrace change and innovation.
