Do banks stand a chance against tech giants?
Technology companies are steadily moving into territory once dominated by banks, and they won’t stop at payments and lending platforms
Andrew Sheng is a former central banker and financial regulator, currently distinguished fellow at the Asia Global Institute, University of Hong Kong.
How are banks responding to an era of massive tech disruption and the prospects of lower interest rate margins as global interest rates fall?
The banking industry used to be a highly profitable business because interest rate margins – the difference between the lending rate and deposit costs – were high. In the 1960s, when bankers were considered trusted custodians of other people’s money, the “3-6-3” dictum referred to bankers offering depositors 3 per cent on their accounts, lending that money out at 6 per cent and heading to the golf course at 3 o’clock.
The average net interest margin of banks got squeezed when the US Federal Reserve and European Central Bank started cutting interest rates after the 2008 financial crisis. The stock market valuation of the banking industry took a beating with prospects of a slower economy, threats of more non-performing loans and heavy overhead costs.
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