For the first time in three years, all the banks are back in the black. More importantly, the gap between statutory profits and core profits is narrowing, suggesting that the post-crises restructuring efforts are starting to pay dividend. There are several encouraging trends in the results: rising mortgage volumes, a continued downward trend in impairment and reduced dependence on wholesale funding as customer deposits increase.
However, a few dark clouds remain. Banks continue to pay for their past mistakes. Customer remediation and redress costs accounted for almost 20 percent of the H1 profits. While banks are strengthening their capital positions, regulators are still asking for more. And the long term downward trend of margin compression due to low interest rates and derisking challenges business models.
In light of these first-half results, what, then, might UK banking look like in the next three to five years? In this report, we explore a number of key issues and themes facing and re-shaping the industry. These challenges must all be considered in light of the fact that most banks have new leaders at the helm and with a much more onerous personal accountability framework within which they need to operate within.