KPMG Survey: Banking execs focused on weathering risks to growth while investing in digital future

—   Credit risk poses greatest threat to growth, with culture, regulatory action, tax and cybersecurity also top of mind.

—   Nearly 50% say the future of banking will be exclusively digital and virtual within a decade; 39% to have metaverse presence within a year.

—   77% expect recession within a year; 42% see managing the risks and costs of inflation as a key challenge.

NEW YORK, June 28, 2022 — Executives from the largest banking institutions are focused on addressing a multitude of risks and challenges, such as credit risk (credit card and loan defaults/delinquencies) and inflation, while investing in digital strategies and offerings that will include the metaverse, according to a new survey from KPMG LLP, the U.S. audit, tax and advisory firm.

“Banking executives are proactively tackling various risks and threats to their banks’ growth — including credit and cyber risk — while investing in the future,” said Peter Torrente (@PeterTorrente), National Sector Leader, Banking and Capital Markets, KPMG LLP. “Banks with a customer-first mindset and digital-now strategy will be best positioned to succeed amid the ongoing economic uncertainty.”

The KPMG State of Banking Survey features insights from 100 senior executives – many representing some of the largest banks in the industry with nearly 40% having assets totaling $100 billion or more – on key challenges and opportunities facing the banking industry. The key findings of the survey are below.

Economic and industry outlook

• 77% expect a recession within the next 12 months.
• 87% are confident in the long-term growth prospects of the U.S. economy, but only 27% are confident in short-term growth.
• Respondents show confidence in the growth prospects of the global economy in both the long term (97%) and short term (64%).
• 55% are unsure of their banks’ future profitability and growth prospects in this highly uncertain environment of inflation and geopolitical risks.
• 59% expect the Federal Reserve to raise interest rates every time it meets in 2022; 54% predict rates will continue to rise into the first quarter of 2023.

Threats to growth

• Credit risk is seen as the number one threat to growth over the next three years, followed by culture, regulatory action, tax and cybersecurity.
• 42% see managing the risks and costs of inflation as a key challenge.

Cyber risks

• As digital banking increases, 81% of respondents expect to see an increase in cybersecurity threats, yet 34% indicate their bank is not investing enough in cybersecurity protection.
• 43% say their bank is not adequately equipped to protect customer data, privacy and assets in the event of a cyberattack. 
• 64% have not seen an increase in cyberattacks on their bank since the start of the Russia-Ukraine war.
• Nearly half (47%) are investing more heavily in cybersecurity as a result of the Russia-Ukraine war.

Digital investment vs. brick-and-mortar

• Nearly half (48%) say that within the next decade banking will be exclusively digital and virtual with no brick-and-mortar facilities.
• Two-thirds are currently downsizing their brick-and-mortar footprint.
• To better compete in the digital age, 60% are investing heavily in developing their own digital and fintech capabilities, with 54% admitting they are losing significant market share to nontraditional service providers.

Metaverse

• 39% plan to have a presence in the metaverse within a year, with 53% noting that failing to establish a presence will result in significant future market share loss.
• The most important reason for establishing a presence in the metaverse is providing an efficient and compelling customer service channel (34%), followed by improving customer engagement (22%).

Mergers and acquisitions (M&A)

• Over the next three years, 63% say they will have a moderate or high M&A appetite.
• 31% say pursuing M&A is among their organization’s top five priorities.

Environmental, social, governance (ESG)

• 45% say they lack the technology solutions necessary to achieve their climate ambitions, such as net-zero emissions.
• 67% say their bank plans to purchase assets in carbon markets to meet ESG goals.
• 50% identify setting an achievable ESG goal and reporting compliance as top priorities.

Talent

• 61% identify employee retention and the Great Resignation as talent issues of significant concern to their organization, while 50% cite adaptation to a remote or hybrid environment and competition for technology-capable talent.
• 51% are acquiring talent by accessing both a wider geographic base and greater diversity of talent.
• When asked about their key areas of focus associated with future of work risk and opportunities, 49% are focusing heavily on maintaining firm culture in a predominantly remote or hybrid environment, and 57% on balancing the need for in-person and digital interactions.