S&P Global Market Intelligence 2022 banking industry outlook says pandemic response proves double-edged sword for U.S. banks

Rhea-AI Summary

The 2022 Banking Industry Outlook Report from S&P Global Market Intelligence highlights the impact of government relief efforts during the COVID-19 pandemic on U.S. banks. Excess liquidity created by these initiatives is forecasted to stay above $2.9 trillion through 2023, leading to bank margins remaining below pre-pandemic levels. The report indicates a surge in M&A activity and digital adoption, with 3,609 branch closures in 2021. Despite these challenges, the report notes a strategic shift towards technology investments and scale to compete with fintechs.

Positive

• M&A activity in U.S. banks has reached the highest aggregate value since the global financial crisis.
• Digital adoption has prompted banks to modernize and improve efficiency.
• Fintech companies attracted nearly $7.5 billion in venture capital in Q2 2021.

Negative

• Excess liquidity is expected to remain a headwind for bank margins through the next few years.
• Loan growth remained weak during the pandemic despite historic deposit growth.

NEW YORK, Nov. 8, 2021 /PRNewswire/ -- The U.S. government's efforts to flood the markets with cash in the aftermath of the COVID-19 pandemic propped up borrowers but also left institutions flooded with excess liquidity, according to the newly released 2022 Banking Industry Outlook Report from S&P Global Market Intelligence.  

Published by S&P Global Market Intelligence's Financial Institutions Research team, the report says that the excess cash created by government relief efforts and forbearance provided by U.S. banks will remain on their balance sheets for the foreseeable future, leaving bank margins below pre-pandemic levels for the next few years. Amid a tough earnings environment and changing competitive landscape, some banks are working to modernize their offerings, while others are pursuing mergers in the face of daunting challenges. M&A allows institutions to right-size their costly branch networks, while making necessary technology investments that enable more effective competition with fintechs.

"Emergency relief efforts during the pandemic moved credit risk off the table but have directly contributed to margin pressure at U.S. banks," said Nathan Stovall, principal research analyst at S&P Global Market Intelligence. "Banks have been forced to adjust to customers shifting business to digital channels as well as new competition from fintech and big tech firms. This has put a premium on achieving scale to invest in technology, become more efficient and compete more effectively, prompting a greater number of banks to look at deals."

Key highlights from the report include:

• Trillions of dollars in government relief efforts led to historic deposit growth at U.S. banks during the pandemic, while loan growth remained weak. The dynamic caused an estimated $3.72 billion in excess liquidity to build on bank balance sheets as of June 30, 2021, and excess funds are expected to remain above $2.9 trillion through 2023 even as the economic recovery continues.
• Against a challenging revenue environment, more banks have sought scale to invest in technology and reduce costs, leading to increased M&A activity. U.S. bank M&A aggregate deal value in 2021 has already reached the highest level since the global financial crisis, and buoyant deal activity is expected to continue in 2022.
• Heightened digital adoption and cost-cutting efforts prompted a record 2,414 net branch closures in 2020. The pace of closures accelerated in 2021, with net closures totaling 3,609 over the 12-month period ending Aug. 31. Both trends should continue as increased M&A activity allows for future technological investments and more branch consolidation.
• Major fintech players have attracted massive capital and added new financial services product lines and features aimed at further entrenching customers to grow market share and improve profitability. Fintech companies in the U.S. attracted nearly $7.5 billion in venture capital funding in the second quarter of 2021 across 194 transactions, up nearly 70% year over year.

Excess liquidity should remain headwind for foreseeable future

The S&P Global Market Intelligence 2022 Banking Industry Outlook is part of a "Big Picture Outlook" series published by the division's research group that provides a look ahead to key strategic trends and opportunities. To learn more about this "Big Picture Outlook" research series, please visit here.  

To request a copy of report, please contact pressinquiries.mi@spglobal.com.

S&P Global Market Intelligence's FIG Research team provides independent forecasts and real-time analysis of the banking, insurance and financial technology sectors, across multiple geographies, leveraging the deep sector knowledge of its analysts. The FIG offering complements S&P Global Market Intelligence's broad universe of research sector coverage including energy, enterprise technology, metals & mining and TMT (Technology, Media and Telecom).

S&P Global Market Intelligence's opinions, quotes, and credit-related and other analyses are statements of opinion as of the date they are expressed and not statements of fact or recommendation to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security.

About S&P Global Market Intelligence 
At S&P Global Market Intelligence, we understand the importance of accurate, deep and insightful information. We integrate financial and industry data, research and news into tools that help track performance, generate alpha, identify investment ideas, perform valuations and assess credit risk. Investment professionals, government agencies, corporations and universities around the world use this essential intelligence to make business and financial decisions with conviction. 

S&P Global Market Intelligence is a division of S&P Global (NYSE: SPGI), the world's foremost provider of credit ratings, benchmarks and analytics in the global capital and commodity markets, offering ESG solutions, deep data and insights on critical business factors. S&P Global has been providing essential intelligence that unlocks opportunity, fosters growth and accelerates progress for more than 160 years. For more information, visit www.spglobal.com/marketintelligence. 

Media Contact 
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S&P Global Market Intelligence  
+1 212-438-1904  
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SOURCE S&P Global

FAQ

What is the 2022 Banking Industry Outlook report by S&P Global Market Intelligence about?

The report discusses the effects of government relief on U.S. banks, emphasizing excess liquidity and its impact on bank margins and M&A activity.

How much excess liquidity is projected for U.S. banks through 2023?

Excess liquidity is expected to remain above $2.9 trillion through 2023.

What trends in M&A activity are noted in the report for U.S. banks?

The report indicates that M&A activity has reached its highest level since the global financial crisis.

How many bank branches closed in 2021 according to S&P Global's report?

There were 3,609 net branch closures over the 12 months ending August 31, 2021.

What is the significance of digital adoption mentioned in the report?

Increased digital adoption is pushing banks to modernize their services and improve operational efficiency.