The financial sector, a dynamic economic realm, is deeply influenced by its surroundings. Constantly under the watchful eye, it responds to factors such as the fiscal credibility of its home country, geopolitical uncertainties, and the evolving landscape of global politics. As we step into 2024, a pivotal year with various crucial elections worldwide and a heightened focus on sustainability, the financial sector braces for potential shifts in political strategies that could significantly impact both global and domestic financial environments.
Economic activity, employment, and inflation trends are pivotal factors shaping the business landscape for banks. The anticipated economic slowdown in 2024 may moderately affect the volume of new business, from savings acquisition to loan approvals. This trajectory is also contingent upon the movement of interest rates, which are expected to remain relatively elevated. The year commences with a rise in inflation, primarily due to the withdrawal of certain energy-related subsidies and emerging tensions in the Red Sea – early signals of concern. While the full impact remains uncertain, the financial sector should not presume a replication of the global inflationary surge witnessed in 2021-2022. However, these events serve as a reminder of the numerous challenges en route to the central banks’ inflation target (2%). If the inflationary impact is transient, we might witness the first rate cuts before summer, influenced by the euribor’s behavior in the coming weeks. A rate decrease could help keep financial costs in check, aiding in the maintenance of low delinquency rates.
The political landscape assumes particular significance, evident in the strong representation of the banking sector at the ongoing Davos Forum. The outcomes of elections worldwide will be closely monitored by financial institutions, alongside technology and energy companies, as they anticipate potential shifts in political priorities impacting global financial regulations.
While interest rates may remain elevated in 2024, the net interest margin of banks is expected to decrease due to higher deposit remuneration and a downward trend in lending rates. Despite this, with controlled delinquency rates and ongoing technological investments, the overall results of banks are poised to continue the positive trend observed in 2023. However, it’s unlikely that there will be substantial growth compared to the previous year. The impact of the banking profit tax will dampen these figures, posing challenges for reserve increments and the international competitiveness of the banking sector.
In the tech-driven landscape of 2024, technology will play a crucial role in banking strategies. Financial institutions embraced the digital era over two decades ago, investing consistently in new technologies. Now, as we witness the nascent stages of generative Artificial Intelligence (AI), there’s immense potential to reshape not only banking practices but the entire economy and societal functions. While 2024 is expected to showcase significant strides in AI within banking, there’s still vast untapped potential. It’s crucial to acknowledge the associated risks and exercise caution, especially in the digital realm. Cybersecurity risks will once again top the agenda, emphasizing the need for meticulous planning to prevent technological disruptions.
In summary, 2024 holds substantial potential for the financial sector, driven by economic, political, and technological factors. However, there’s a need for careful navigation and risk management to ensure sustained progress and guard against unforeseen challenges.