The Latest Headlines From Across The Banking Sector - July

2021-08-06 |  Ben Dineen

The focus at the halfway point of this financial year is on the positive results announced in the sector, driven by a strong economic performance as the UK eases up on lockdown measures. We also look at the BoE’s concerns raised with Cloud adoption…

Strong showing in the half-year results

  • The half-year results from the major UK banks all reported a positive upturn when compared with H1 2020, (selected examples: Lloyds Bank, Barclays, HSBC, Natwest, Santander, Metro)
  • This is partly down to a booming housing market and better than expected economic outlook in the UK
  • The rise in profits can be attributed, to a large extent, to the significant release in provisions made during the pandemic as general macro sentiment improves
  • As a result, a number of these banks have reinstated dividend payments - this comes after the Bank of England removed the curbs in place on dividends, bonuses and buybacks after banks proved to be resilient enough in the solvency stress testing
  • In terms of results and financials, the focus will move back to inflation and the near term prospects of rate rises

BoE warning over Cloud providers

  • The bi-annual Financial Stability Report from the Bank of England called out concerns over the increasing dependence of financial institutions on the organisations providing Cloud services
  • The BoE’s concern is the control these organisations will have over UK Banks, particularly regarding the storage of customer data, as the tech firms remain unregulated
  • Finding a resolution will require more regulation and collaboration with overseas supervisors, and quickly, as the adoption of Cloud will only continue to grow. This could include bringing key aspects of Cloud infrastructure and its contracts for financial institutions under the BoE regulatory umbrella
  • Investment in Cloud solutions isn’t new with organisations using it as a way to increase efficiency and cut costs, however, the pandemic has driven a greater need for digital transformation in response to customer demands and shifts in ways of working – and Cloud is seen as a key enabler
  • Banks and Building societies will await the BoE’s next move. In the meantime, they must recognise that migrating more services to the Cloud is only the beginning – once there, organisations will need to build more agile IT infrastructure and operations to gain the most benefit from it

And in case you missed it…

  • Starling Bank, Virgin Money and TSB became the latest beneficiaries of the Banking Competition Remedies Board following the RBS bailout, receiving £24.1m handout as a result of underspend by the UK’s Incentives Switching Scheme
  • Lloyds takeover of Embark follows a trend in retail banks branching out into Wealth Management, and follows in the footsteps of JP Morgan acquiring Nutmeg recently, in an effort to diversify income streams – we’ll be keeping an eye on this and other similar activity in the sector. Commentors have long pointed to the opportunity of the banks to enhance returns through leveraging their customer base with bancassurance offerings. The digitisation of advice is opening up that line of thinking once more
  • The latest figures from the Current Account Switching Service (CASS) show the number of UK current accounts switched in the last quarter increased by 30%, with Starling Bank, Virgin Money and Monzo leading the way. With M&S and Tesco closing their current accounts, the FinTechs have established unquestionable dominance as the pre-eminent ‘challengers’ – the question is when net losses will reach a level to concern the majors

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