InFocus: Global Banking & Financial Services Sector in 2024

A slowing global economy in 2024, coupled with a divergent economic landscape, will challenge the Banking & Financial Services industry over the next 12 months.

Banks’ ability to generate income and manage costs will be tested in new ways. Many factors are reshaping the structure of the banking and capital markets industry. Higher interest rates, reduced money supply, more complex regulation, climate change, and geopolitical tensions are key drivers behind this transformation.

The growth of new technologies is also influencing how banks operate and serve customer needs. The impact of generative AI, digitisation of money, decarbonisation, digital identity, and fraud will grow in 2024.

However, the Banking & Financial Services Sector is on a sound footing, but revenue models will be tested. Organic growth will be modest, forcing institutions to pursue new sources of value in a capital short environment. Investment banking and sales and trading businesses are, as you would expect, adapting to new competitive dynamics. Forces like the growth of private capital will challenge this sector to offer more value to both corporate and buy-side clients, whilst 2023 shocks to the global banking structure will have undoubtedly made them re-assess their strategies Banks are focused on proposed regulatory changes to capital, liquidity, and risk management, and as always there is much to be done to evolve business models. Central banks will continue to refine their monetary policies through 2024.

Interest rates in the USA are expected to drop to between 450-500 basis points in the second half of 2024. The European Central Bank is expected to begin decreasing interest rates in the second half of the year (in August 2023, their rate stood at 3.75%, matching the peak in 2001). Meanwhile, the Bank of England is expected to lower the policy rate in the first half of 2024. However central banks across the world will continue to apply quantitative tightening measures which will contract global money supply.

Going forward, the global banking industry may be hard-pressed to bring down high deposit costs even as interest rates drop. Customer expectations of higher rates, coupled with increased market competition, will force many banks to offer higher deposit rates to retain customers and shore up liquidity. The situation will vary by region, though.

European banks may be able to decrease deposit costs more rapidly, for instance. The European banking industry has not faced as much competition from money market funds, unlike in the United States. Loans growth will be modest, and demand will be steady at best, given the macroeconomic conditions and high borrowing costs.

Banks will also likely continue their restrictive credit lending policies and many banks have already tightened credit standards across all product categories. The combination of higher deposit costs, lower policy rates, and somewhat constrained loan potential will adversely impact banks’ ability to generate strong net interest margin in 2024.

psd has recruited in the Banking & Financial Services sector for 30 years and operates at Board and senior management level. For further details please contact Peter Hardy, Managing Director at and 020 7970 9701.