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Indonesian banks reap geographic benefits, study finds
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High-rise buildings are seen in the Sudirman central business district of South Jakarta on March 14, 2021. (AFP/Adek Berry)
B
anks in Indonesia and other countries of the region stand to gain from a stronger macroeconomic outlook, while European lenders face much bleaker prospects, according to McKinsey & Company, but emerging markets as a whole are no longer what they used to be.
Profitability in the banking industry reached a 14-year high in 2022 with expected return on equity (ROE) of 12 percent and revenue growth propelled by a sharp increase in net margins as interest rates rose, the management-consulting firm says in its Global Banking Annual Review 2022.
The projected increase in profitably comes after a decade of more or less flat ROE at around 8 percent.
However, that worldwide figure hides stark differences based on location, as more than half of the world’s banks are reportedly struggling with profitability.
“The divergence between banks -- depending on their geography and/or specialization -- is growing, but all banks everywhere can focus now on improving their short-term resilience and embracing longer-term opportunities,” states the report published on Thursday.
Opportunities, the firm says, lie in the “theme of sustainable finance […] as banks finance not just clean energy but a much broader array of transformational low-carbon projects across industry sectors”.
Specifically, the report notes, “debt-focused investment supporting the transition to net zero could offer banks revenue potential of at least US$100 billion annually by 2030”.
