Canadian Treasurer

February 18, 2015

EY's 2015 banking outlook: Time to redefine the core of a bank

TORONTO--Canadian banks need to reinvent themselves through simplification of businesses, deconstruction of products and an end to global universal banking, according to EY's Global banking outlook 2015: Transforming banking for the next generation.

In the aftermath of the financial crisis, new regulations, investor sentiment and evolving customer behaviour are challenging Canadian bankers' commitment to global universal banking. EY's report shows that around the world, banks operating on a global scale reported average ROEs of around 7.5% in 2013, while large banks with a less diverse business and geographic footprint achieved an average ROE of around 10.7%. Canadian big six banks had an even higher ROE of 15.54%.

"Banks themselves are starting to realize that the creation of new products is often less efficient and profitable than expected," says Andre de Haan, Canadian Leader, Financial Services at EY. "The time has come for banks to simplify."

Simplifying businesses
According to the EY report, there's little correlation between the breadth of a bank's product offering and its market share. As a result, banks need to examine what's truly core to their business. Parts of the business that don't add value need to be improved. If that's not possible, they need to be identified as non-core or provided to customers through an alternative supplier.

"In addition to reassessing business lines, banks need to re-evaluate their internal operations. If certain back-office functions don't add a competitive advantage, banks may consider outsourcing them," says de Haan.

Deconstructing products
By breaking products into their component parts, banks will enable customers to pick and choose products that truly suit their needs. If banks succeed at differentiated offerings, they'll increase share of wallet, reduce the cost of operations, and show regulators they're treating customers fairly.

The need for transformation
For more than a decade, a mix of consolidation and competition in Canadian banking has created complex organizations, with diverse portfolios of products, operating across multiple business lines. According to the report, Canadian banks will need to fundamentally transform their strategies and operating models based on these five key drivers:

1.Quest for growth
2.New era of competition
3.Redefining of the core of the bank
4.Technology-driven reshaping of banking
5.Redefining of organizational structures

"The banks that focus on their core businesses and redesign themselves to be more flexible, lean and more responsive to customer demands, will be the most successful in the coming decade," says de Haan.

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.




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