The Challenge for Banks Today is How to Succeed With Growth, According to a
New Report From The Boston Consulting Group (BCG)
NEW YORK, May 10 /PRNewswire/ -- The banking industry substantially
increased its returns by improving profitability, powering strong stock-market
gains. Banks around the world focused on improving their effectiveness,
thereby increasing their average return on equity by 1.1 percent over 2003,
generating an overall ROE of 15.5 percent. Banks reached high levels of
profitability and now have to think about growth strategies to build on their
good performance.
For the past five years, the banking sector has outperformed overall
markets and delivered an average total shareholder return (TSR) of 7.4
percent, even as markets worldwide suffered negative returns.
Pushing profitability above the cost of equity is the key to value
creation; however, our analysis shows that there are limits. The new study
underlines that pure efficiency gains have limits, as large universal banks
have hardly managed to maintain sustainable cost-to-income ratios
significantly below 50 percent. Banks have to be aware of these limits and
consider their growth options.
In 2004, top performers increased their value primarily through growth. A
successful growth strategy becomes decisive when it taps into large global
revenue pools. In terms of market potential, BCG forecasts that mature markets
will have the largest revenue pools in absolute terms for a long time to come,
despite relatively higher growth rates in emerging markets. Banks therefore
have to tackle the challenging task of growing organically in competitive
mature markets. To do this, top performers in 2004 employed such successful
strategies as developing sophisticated CRM approaches, achieving higher
customer penetration, employing smart channel mixes, exploiting niche
opportunities, and using superior products and processes to aggressively
attack target markets.
Considered and well-executed acquisitions can create considerable value,
and half our top performers' growth derived from acquisitions. Successful
players used acquisitions to grow in size and to build complementary
capabilities. European cross-border mergers, in particular, are picking up
rapidly. Additionally, many banks have started to establish growth platforms
in prosperous emerging markets, especially in Asia, by acquiring small players
and then injecting their own know-how.
The study offers several important insights for senior bank executives. It
particularly underlines the importance of successful growth strategies for
increasing shareholder value, both through organic growth and through
successful acquisitions.
For further information, please contact Walter Sinn, a vice president and
director in The Boston Consulting Group's Frankfurt office; Ranu Dayal, a vice
president and director in the firm's New York office; or David Pitman, a vice
president and director in BCG's Sydney office, the three principal authors of
the report.
About The Boston Consulting Group:
The Boston Consulting Group is a general management consulting firm that
is a global leader in business strategy. Founded in 1963, the firm now
operates more than 60 offices in 37 countries. BCG has a substantial
financial-services consulting business. This report, however, is not intended
to provide investment advice. For further information or a full copy of the
report, please visit BCG's Web site at http://www.bcg.com.
SOURCE The Boston Consulting Group
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Related links:
http://www.bcg.com
CONTACT:
K.C. Munuz, +1-617-973-1382,
munuz.erol@bcg.com, or Peter Truell, +1-212-446-3267,
truell.peter@bcg.com, both of The Boston Consulting Group
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