Volatile global markets leave financial services sector in business volume slowdown

BY Fraser Tennant

Volatile global markets are having a marked effect on the financial services sector with business volumes slowing from July to September, according to the latest CBI/PwC Financial Services Survey.

Strong competition is being blamed for the slowdown, with financial services firms taking a big hit on fees & commissions, net interest, investment and trading income.

Despite this impact on income growth, the overall business situation is viewed as stable, with profitability still growing, albeit at a significantly slower rate than that seen in recent years.

The Survey’s key findings include: (i) 25 percent of financial services firms reporting that business volumes were up, while 21 percent said they were down (the slowest rate of growth seen since September 2013); (ii) 24 percent of firms expecting business volumes to increase, while 8 percent believe they will fall; and (iii) 28 percent of financial services firms stating that they felt more optimistic about the overall business situation compared with three months ago, while 26 percent said they felt less optimistic (the lowest rate of growth since September 2012).

“The winds of volatility blowing through global markets have left a clear mark on the financial services sector, impacting business volumes and investment intentions, particularly in investment management and securities trading," said Rain Newton-Smith, director of economics at the CBI.

“Nevertheless, building societies’ business volumes have rebounded, and with financial sector costs under control, profitability is in good shape. At the same time, investment in IT is set to increase as firms aim to improve efficiency.”

Mr Newton-Smith also points out that slower growth in China and other emerging markets has had a knock-on impact on confidence in the world economy, with the Federal Reserve holding off raising interest rates in the United States.

Kevin Burrowes, PwC’s UK financial services leader, added: “Business confidence among banks flat-lined in the quarter leading to September 2015, leaving the sector cautious over its short-term outlook. Recent macro-economic events such as the fall in oil prices, China’s Black Monday, and the ongoing turmoil in global stock markets might have fuelled this sentiment. With interest rates expected to remain on hold, growth for UK banks continues to be challenging.”

Challenging for sure, but the outlook for the financial services sector is encouraging with growth forecast to pick up over the coming months (keeping pace with business volumes in  life insurance, building societies and securities trading), although still well short of the growth levels seen in early 2015.

Report: CBI/PwC Financial Services Survey – September 2015

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