By Daniel Lanyon on Monday 23 January 2017
The CBI and PwC have a new report highlighting an increasingly bleak mood among banks, except for their view of fintech.
Sentiment amongst financial services firms deteriorated further in the three months to December, but there are signs of an improvement in business conditions over the next quarter for some sectors, according to the latest CBI/PwC Financial Services Survey.
It found optimism about the overall business situation fell for the fourth consecutive quarter, the longest period of declining sentiment since the global financial crisis of 2008, and the sharpest fall since December 2008.
The December 2016 Financial Services Survey was conducted between 15th November and 1st December 2016. 103 firms replied.
A more pessimistic mood was particularly prevalent among banks, with general insurers and finance houses also less optimistic. However, investment managers, life insurers and insurance brokers were more optimistic than they had been three months earlier.
Overall business volumes were flat in the last quarter of 2016, but are expected to pick up somewhat in the first three months of 2017, with stronger demand in the life insurance and investment management sectors contrasting with a more challenging environment expected by banks and building societies.
Growth in profits was also unchanged in the three months to December, but profitability is expected to improve across financial services in the next quarter, (with the exception of building societies), as cost pressures continue to ease.
Asked about the potential of FinTech investments over the next three years, firms see the biggest potential as being for process automation, data analytics, cyber security and digital transformation.
Asked about the main challenges for financial services firms in 2017, a range of concerns emerged. Nine in ten banks saw preparing for the impact of Brexit as the number one challenge, but this was not the case in any other sector. Building societies were most concerned about macroeconomic uncertainty, while the level of competition preoccupies the insurance sectors. Firms in every sector see the need to intensify their dialogue with regulators in response to uncertainty around Brexit.
Rain Newton-Smith, CBI Chief Economist, said: “Despite feeling uncertain about the near future, it’s encouraging to see the financial services sector charting a steady course, with firms expecting to raise investment and step up the pace of hiring, while continuing to deliver improvements to the bottom line.”
Hr says in 2017 s more mixed picture emerges, however, from financial services firms about their hopes and fears.
“Whilst Brexit is a particular challenge for banks, and broader economic uncertainty is also a concern for many, firms are also looking to future opportunities, with the promise of FinTech offering an exciting chance for the sector to lead the way in adopting new technology and boosting productivity,” he said.
“Ruling out membership of the Single Market has reduced options for maintaining a barrier-free trading relationship between the UK and the EU. Businesses will welcome the greater clarity and the ambition to create a more prosperous, open and global Britain, with the freest possible trade between the UK and the EU. Business stands ready to support the negotiations to get the best possible deal for the UK by ensuring that the economic case is heard loud and clear.”
Andrew Kail, Head of Financial Services at PwC, said: “Uncertainty has contributed to the low levels of optimism reported by many financial services companies, particularly by the banks."
Recent data from the Office for National Statistics show a slight rise in employment in financial services in Q3 2016.