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Bank trends: Expectations for UK banking sector in 2021



  • UK banking sector expected to undergo a digital transformation in the coming years
  • How is retail banking and corporate banking different?
  • UK banking shares extend recovery following Rishi Sunak’s Budget 2021
  • Chancellor Rishi Sunak unveil long-term financial recovery plans

UK financial institutions will be keen to tap into the lucrative commercial industry this year to overcome the challenges the pandemic has thrown at them.

Torsten Pull, Corporate Banking General Manager at Finastra, said UK banks should seek to overcome the difficulties they face by innovating their systems with more digital capabilities and revenue-enhancing activities in the quest for SME business.

The COVID-19 pandemic has challenged banks to step up this year, and Mr Pull insisted that by finding opportunity in trade finance, financial institutions will have the means to tackle the regulatory environment in 2021 and beyond.

Many businesses will be desperate to alleviate liquidity stress this year and are expected to turn to banks for working financial strategies and capital solutions.

According to the World Trade Organisation (WTO), an estimated 90% of global trade relies on some form of bank intermediary action to support liquidity management, no matter the business type.

In the financial world, there are two common types of businesses that facilitate consumption – those that operate within the retail umbrella, providing goods and services to consumers, and firms that offer corporations products and services.

UK banking sector

What’s the difference between Retail Banking and Corporate Banking?

Retail banking, also known as personal banking, refers to a type of banking that provides services to the typical consumer, encompassing their everyday banking demands and needs.

Retail banks profit from everyday consumers by offering credit cards, personal loans, mortgages, and saving accounts.

Meanwhile, corporate banking is a subset of business banking and encompasses services that cater to large businesses, such as providing credit and cash management features.

Elements of Retail Banking

  • A vast and diverse pool of consumer profiles with a variety of needs and requirements from their financial institutions
  • The cost of most products and services offered are relatively small as the consumers’ main reason for banking is to save and withdraw money
  • Most monetary transactions and exchanges are small in value
  • Financial services provided include and are not limited to account maintenance, debit and credit cards, personal loans, deposits, and withdrawal services
  • Banks profit off fees and interest on overdrafts, term loans, mortgages and other products

Elements of Corporate Banking

  • Corporate financial institutions cater to a small clientele of businesses to be able to manage more complex demands while offering a premium service
  • The products and services provided are more specific and concentrated in providing services to other businesses
  • Fees and associated costs of products and services are more expensive than those offered by retail banks
  • Monetary transactions and exchanges tend to be significantly high in value
  • Loans are offered that allow businesses to grow and contribute to the expansion of the economy
  • Financial institutions develop a strong rapport with clients due to the more involved nature of the service

While retail and corporate banking institutions are various, they are also linked in a sense as they support each other.

Corporations depend on consumers to purchase their products and use their services, while consumers expect businesses to satisfy their needs and provide solutions to issues they cannot fix themselves.

However, to remain competitive, banks will likely need to undergo a digital transformation in the future as the coronavirus pandemic highlighted the digital shortcomings of the financial sector.

According to the latest research from Finastra during its virtual flagship event, the financial conglomerate revealed that the priorities for corporate banks are changing as a result of the pandemic.

Over the next five years, many will seek to prioritise their online banking services and implement new technology such as digital signatures and cloud storage software to deliver more tailored financial solutions to customers.

Finastra’s research also showed that banking trends are changing as corporate banks are diverging from traditional methods of client interaction and management and searching for new ways to conduct banking online as consumers become more tech-savvy.

Recent share price action also suggests that the UK banking sector could have more to offer in the years to come as Brexit and COVID-related risks subside.

UK banking shares recovering from the pandemic-induced slump

UK bank shares extended their climb higher following Wednesday Budget 2021 announcement by the Chancellor.

Although a global stock market rout has sent most shares plunging ahead of the weekend, UK bank recovery prospects remain bright.

HSBC (LON: HSBA) shares are up by nearly 3% or 12.60 points at 439.10, while Barclays (LON: BARC) is 3.77% higher or up by 6.28 points at 172.94.

Although Lloyds Banking Group PLC (LON: LLOY) is down by 0.2% at 40.20, several analysts have said the banking stock has significant upside potential.

The bank’s net income slumped by 16% annually due to the Treasury’s payment holidays, and the Bank of England’s (BoE) reduced interest rates. However, Lloyds gave investor reason for optimism after declaring a final dividend at the highest level permitted.

Chancellor Rishi Sunak’s review on the surcharge on bank profits could also support Lloyds bank’s outlook, especially now that risks to high street banks appear to be disappearing.

Rishi Sunak reviewing the bank surcharge following Budget 2021 announcement

During his Budget review, Chancellor Rishi Sunak said that the 8% surcharge on bank profits would be reassessed following the Treasury’s decision to hike corporation tax to 25% to ensure the UK banking sector remains competitive.

The UK government is concerned that the impact the tax hike would have on banks will threaten the UK’s ability to compete against their US and European counterparts.

Banking professionals were watching closely to see whether Mr Sunak would comment on the potential implications that raising corporation tax would have on UK banks’ competitivity and welcomed the Chancellor’s recognition of the issue during his Budget speech.

Isabelle Jenkins, leader of financial services at PwC UK, praised the Chancellor for acknowledging that “the overall tax rate for banks will be too high if there is no action taken.”

She said she looks forward to “the outcome and proposals of the Government review which is expected to be announced in the autumn” and legislated in the Finance Bill 2021-22.

Isabelle Jenkins also highlighted the importance of the banking sector to overall UK economic growth by implying that a reduction to the surcharge “will be hugely important to credit creation in the coming months as we being to recover from the pandemic.”


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