pwc banking in 2050 - may

8/4/2019 PwC Banking in 2050 - May

http://slidepdf.com/reader/full/pwc-banking-in-2050-may 1/28

www.pwc.co.uk/nancialservices

How the fnancial crisis

has aected the long term

outlook or the global

banking industry.

May 2011

Banking in 2050



Contents1. Executive Summary 3

2. Approach 6

3. How large will the emerging economies become? 8

4. Domestic banking assets – 12historic trends

5. Projections o banking assets and 15 profts to 2050

6. Conclusion and key questions 23

Annex: Methodology and data 25



Banking in 2050, May 2011 3

* “PwC” refers to the network of member rms ofPricewaterhouseCoopers International Limited (PwCIL),or, as the context requires, individual member rms ofthe PwC network.

1 “Banking in 2050: How big will the emerging marketsget?”, June 2007, http://www.pwc.com/gx/en/ world-2050/banking-sector.jhtml

2 “The World in 2050, The accelerating shift of globaleconomic power: challenges and opportunities”,January 2011, ht tp://www.pwc.com/gx/en/world-2050/ the-accelerating-shift-of-global-economic-power.jhtml

The accelerating shit ineconomic power rom thedeveloped to emerging economies is dramatically changing the banking

industry across the world.

Leaders o nancial institutions needto take advantage o the growthopportunities this change is creating.This report provides projections o thelong-term trends o the banking sectorbased on the underlying macro-economictrends, rom now until 2050 or the world’s leading economies.

PwC* have prepared this report to helporganisations develop their long-termstrategy and plans. Our analysis quantiesthe projected size and growth o thebanking sectors or dierent economies.We identiy the projected timing o the key transitions when the emergingeconomies become leading players. Andcrucially, we demonstrate these changeshave accelerated since the period prior tothe global nancial crisis, placing greaterdemands on industry leaders to respondeectively to these opportunities.

The recent global nancial crisis shook the world economy and set in motion

signicant changes to the banking

industry. In this report we presentupdated projections on how large weexpect the banking industry to becomein the world’s largest economies overthe next 40 years, building on our2007 report on this same topic that

was produced prior to the onset o thenancial crisis,1 and our updated GDPprojections published earlier this year.2

Our key ndings are that:

• The emerging economies’ bankingsectors are expected to outgrow thosein the developed economies by aneven greater margin than we projectedbeore the nancial crisis.

• By 2050 the leading ‘E7’ emergingeconomies could have domesticbanking assets and prots that exceed

those in the G7 by around 50%.• China could overtake the US in terms

o the size o their domestic bankingsectors by around 2023.

• India has particularly strong long-termgrowth potential and our projectionssuggest it could become the thirdlargest domestic banking sector by 2050 ater China and the US, butahead o Japan, the UK and Germany.Brazil could also rise strongly upthe global banking league tableover this period.

1. Executive

Summary



4 Banking in 2050, May 2011

Our long-term projections or the E7 andG7 domestic banking assets are displayedin Figure 1. Over the projection period weexpect the E7’s domestic banking assetsgrow at a aster rate than those o the G7resulting in the E7 overtaking the

G7 around 2036.

Table 1 presents the years in which we project the emerging economies toovertake the developed economies. Wecompare these projections with thoserom our 2007 analysis, and broadly we nd that the emerging economiesovertake the developed economiesearlier than in our original projections.This suggests that the nancial crisis hasbrought about an acceleration in the shitin economic power rom the developed tothe emerging economies.

Source: PwC analysis, IMF

Figure 1: Projections of domestic banking assets in the E7 and G7

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

204920442039203420292024201920142009

nG7 nE7 nWorld

D o m e s t i c c r e d i t ( $ b n 2 0 0 9 p r i c e s

)

Country pairsOvertaking year

(2011 analysis)

Overtaking year

(2007 analysis)

E7 overtakes G7 2036 2046

China overtakes US 2023 2043

India overtakes Japan 2033 2041

Brazil overtakes UK 2045 -

Russia overtakes Italy 2039 2047

Mexico overtakes Italy 2048 2038

Turkey overtakes Canada 2045 -

Source: PwC model projections (where no date is shown this indicates overtaking dates beyond 2050)

Table 1: Dates at which E7 economies overtake G7 in terms of thesize of their domestic banking assets




What questions doesthis analysis raise?The analysis in this report can helpbanks, other nancial corporations andpolicy-makers to identiy the key long-

term macroeconomic trends likely toaect banking over the next 40 years.This should help to stimulate strategicdiscussions and identiy key opportunitiesand threats relating to the emergingmarkets in particular.

Particular questions your organisationmay want to consider are:

• Which economies have the greatestuture potential or growth andinvestment? What are the areas o greatest competitive advantage or our

organisation?

• What growth strategies are opento our business to compete in thisshiting global landscape?Will competition become moreintense? Is greater consolidationan eective strategy? How shouldopportunities be valued given thesegrowth expectations?

• What types o banks will we seedeveloping in the emerging economies(e.g. universal high street banks or

more specialised or localised players)and how will they integrate with andshape the uture evolution o theglobal nancial system (e.g. as regardsdominant currencies)?

• How will new regulatory capital andother requirements impact thesegrowth trends globally and withingeographies where implementationmay be more or less restrictive? How will the use o securitisations impact

these growth trends?

• The pace o prospective growth inglobal banking assets is likely toexceed the sector’s capital generationrom retained earnings raising thequestion: where will the capital tosupport the growth in banking assetscome rom?

• To what extent will non-bank investors such as unds and insurancecompanies be able to access thelending markets across the world

directly (as lenders) or indirectly (through securitisations)?

• Will the asset growth in Asian bankscreate a new cadre o internationalbanks that will come to dominatethe global markets and eatureprominently in banking M&A? Whatthreat could this pose to the currentleading banks and could this lead to adeensively inspired phase o bankingconsolidation?




3 “The World in 2050, the accelerating shift of global economic power: challenges and opportunities”, January 2011,http://www.pwc.com/gx/en/world-2050/the-accelerating-shift-of-global-economic-power.jhtml

4 Note that these ve countries were not included in our 2007 ‘Banking in 2050’ report, but are included here as theyhave long-term potential and were included in the latest update of our ‘World in 2050’ GDP projections.

5 We concentrate on domestic lending only as this allows for the greatest consistency in data between countries.

OverviewIn this section we present an overview o our methodology. We ollow broadly thesame approach that we used in our 2007 analysis, as summarised in Figure 2. Startingrom GDP projections (as reported in the latest update o our “World in 2050” reportin January 20113), we then developed projections or the amount o domestic bankingassets in each economy. We investigated banking prots by applying a country specic

net interest margin to the domestic assets. The technical details o this approach aregiven in the Annex.

2. Approach

Source: PwC model

Note: all projections done by country then aggregated to global level

Figure 2: Global banking projections model structure

GDP & GDP/Capitaprojections from PwC

model to 2050

GDPmodel assumptions

Banking assetsprojections

Bankingassets to GDP ratio

trend analysis (charts)Regression

analysis

Banking protprojections

Returnon assets trend

analysisExpert

judgement




We included the ollowing 22 countriesin the analysis on the basis that, based onearlier model projections, we expect themto have the largest economies in the worldby 2050:

G7 countries: US, Japan, Germany,UK, France, Italy, Canada

E7 countries: China, India, Brazil,Russia, Mexico, Indonesia, Turkey

Other developed economies: Australia, Republic o Korea, Spain

Newly emerging economies: Argentina, Vietnam, Nigeria, Saudi Arabia, South Arica4

GDP projections

We began by taking our updatedlong-term GDP projections as the basisor our projections or domestic credit. As explained urther in the Annex, theseprojections incorporate the eects o:

• the expected growth o the workingage population (as projected by the UN);

• projected growth o human capital(proxied by education levels) andphysical capital (driven by assumedinvestment to GDP ratios ater

allowing or depreciation o theexisting capital stock); and

• total actor productivity growth(global technological progress andlower income countries catching up with richer ones by making use o their technologies and resources).

The projections also allow or realexchange rate increases over time inthe emerging economies linked to theirstronger expected productivity growth(the so-called Balassa-Samuelson eect).

This means that real GDP growth inemerging economies is typically higher when measured in US $ terms than indomestic currency (or PPP terms).

We also combined these GDP projections with UN population projections todetermine GDP per capita trends.From previous research, we know thisper capita income measure is a useulindicator o the state o development

o each economy, which is a key drivero the size o an economy’s bankingsector as a share o GDP.

Domestic banking asset projections

Our baseline projections were derived by assuming an underlying upward trendin the domestic5 credit to GDP ratio inline with historic trends or the countriesconcerned (using IMF data). We alsoallow or gradual convergence to thenorm or countries with relatively high or

low initial banking to GDP ratios relativeto their state o economic development.This convergence occurs at a relatively slow rate o around 2-4.5% per annum,depending on the country concerned(as explained urther in the Annex).

Having generated these projections orthe ratio o domestic credit to GDP, wethen obtained the absolute amount o domestic credit by applying these ratiosto our GDP projections at marketexchange rates.

Banking protability

We investigated the projected protability or the banking sector by determiningthe prots rom the net interest margin(NIM) on domestic banking assets oreach economy. Our approach was to takedata rom Fitch on the NIM in dierentcountries, and to project orward these values under a convergence scenario where the NIM in each country tends toa common value by 2030 (given by theglobal weighted average NIM in 2004-8).

Applying the projected NIM rates to thedomestic assets in an economy gives ameasure o income rom lending activity and thus indicates the level o prots.

In our 2007 report we used return onassets (RoA) as our measure o bankingprotability. However, we decided not touse this measure in this updated analysisbecause it has become much more volatileover the course o the nancial crisis

and so less reliable as a starting pointor a long-term protability analysis.NIM rates have been less volatile and aremore closely related to the domestic assetbase used in this study as the measure o banking size in each country.

Key assumptions and uncertainties

Our analysis rests on the ollowing broadassumptions:

1. Governments ollow broadly growth-riendly policies across the period

or the projections (e.g. maintainreasonable macroeconomic stability,remain open to trade and investment,maintain a reasonable rule o law etc.)

2. There are no catastrophic events thatpermanently throw growth o track (e.g. nuclear war, major global climatedisasters) – as opposed to temporary cyclical fuctuations that we ignoreas we are ocusing here on long-termpotential growth.

These assumptions are, o course,

subject to many uncertainties over theprojection period. Our results shouldthereore be taken as indications o thepotential uture scale o domestic bankingassets and prots conditional on theseassumptions, rather than being orecaststo which spurious precision is attached.The purpose o the analysis is to pointto broad strategic trends in the long runnot to make detailed predictions that arebound to be wrong to a greater or lesserdegree given the uncertainties involved inany such long-term exercise.




3. How large will the

emerging economiesbecome?

Our analysis or banking assets rests heavily on thetrends in GDP and GDP per capita o the countries studied. In our research

“World in 2050”, we published our projectionso the GDP or the dierent

economies considered inthis report. In this section we highlight some o the key fndings rom this researchrelevant to the results orour banking projections.

The global economic power shit rom the G7to the E7 is speeding up“World in 2050: The accelerating shitin global economic power: challenges

and opportunities” presents our GDPprojections or the 20 largest economiesin the world. We have used the resultsrom this analysis to determine the sizeo domestic credit in these economies.Thereore to understand the results orthe banks, it is useul to rst understandthe main changes we expect to see in thesize o these economies.

Figure 3 shows the GDPs o the E7 andG7 in 2009 and our updated projectionsor 2050 (measured in constant 2009

US$ at market exchange rates). We seerom the chart that in 2009, the GDP o the E7 is approximately one third the sizeo the G7, but by 2050 the E7 could growto be more than 60% larger than the G7.Our analysis also suggests that the E7could overtake the G7 in terms o GDP atmarket exchange rates in around 2032 (atPPPs this could occur by 2020, but this isless relevant or the present report).




We expect China could overtake the USby around 2030 based on GDP measuredby market exchanges rates (it could bebeore 2020 based on PPPs). However, we expect China’s rate o growth to slowdown over time due to its rapidly ageing

population as a result o its single childpolicy and as its growth needs to becomeincreasingly based on its own innovationsrather than just replicating theinnovations o the developed economies.

India’s rate o growth by contrast isexpected to overtake that o China’s in thelong run as it has more catch-up potentialand its working age population growth will be much stronger in the long-term.India’s share o global GDP in $ termscould thereore increase rom only 2%in 2009 to around 13% in 2050 ater

allowing also or potential real exchangerate increases. This makes it one o themost rapidly growing economies over thistime period. However, to sustain thesehigh growth rates India must continueto pursue growth-riendly policies (e.g.

invest in inrastructure, open up itsmarkets to increased competition, reducebudget decits, increase rural educationlevels particularly or women and reducebureaucracy).

Table 2 shows how the projected averagegrowth rate or GDP measured in constant2009 US $ at market exchange rates canbe broken down into three components:population growth, real GDP per capitagrowth and a real exchange rate change.

20502009

G D P

( $ b n 2 0 0 9 p r i c e s )

0

20,000

40,000

60,000

80,000

100,000

120,000

nG7 nE7

Source: IMF for 2009, PwC model projections for 2050

Figure 3: GDP projections for the G7 and the E7 to 2050




Country Contributionfrom populationgrowth (%)

Contributionfrom real GDPper capitagrowth (%)

Real GDP growthin domesticcurrencyterms (%)*

Changes in realmarket exchangerates (%)

Real GDPgrowth in US$ terms (%)

(A) (B) (C = A + B) (D) (E = C + D)

Vietnam 0.7 6.1 6.8 1.9 8.7

India 0.8 5.3 6.1 1.9 8.0

Nigeria 1.5 5.0 6.5 1.3 7.8

China 0.1 4.6 4.7 1.1 5.8

Indonesia 0.6 4.1 4.7 1.1 5.8

Turkey 0.6 3.4 4.0 1.0 5.0

South Africa 0.3 3.6 3.9 1.1 5.0

Saudi Arabia 1.4 2.7 4.1 0.9 5.0

Argentina 0.6 3.0 3.6 1.2 4.8

Mexico 0.5 3.2 3.7 1.1 4.8

Brazil 0.6 3.3 3.9 0.5 4.4

Russia -0.7 3.2 2.5 1.4 3.9

Republic of Korea -0.3 2.6 2.3 0.9 3.2

Australia 0.7 1.9 2.6 -0.2 2.4

US 0.6 1.8 2.4 0.0 2.4

UK 0.3 2.0 2.3 0.1 2.4

Canada 0.6 1.7 2.3 -0.1 2.2

Spain 0.1 1.8 1.9 0.1 2.0

France 0.2 2.0 2.2 -0.5 1.7Italy -0.2 1.9 1.7 -0.2 1.5

Germany -0.3 1.9 1.6 -0.3 1.3

Japan -0.5 2.1 1.6 -0.5 1.1

Source: PwC long-term GDP growth model projections (World in 2050 report, January 2011)

Table 2 Components of projected potential GDP growth (% pa average, 2010-50)




6 To illustrate this effect consider the problem of valuing a house located in the Euro zone in US$. Suppose its initialvalue is €100,000, and the market exchange rate is 1€/$. Then the value of the house in dollars is $100,000. Overtime the value of the house will change as measured in local currency, reecting local market conditions, theeconomy etc. Measured in US$ however, there could also be a corresponding change in value due to changes in thereal exchange rate. If the euro appreciates against the dollar in real terms, it will be worth relatively more in dollarterms. So in our example, suppose that after one year there is an increase in the value of the house of 5% in the localmarket, and an appreciation of the euro against the dollar resulting in an exchange rate of 0.95 €/$. The value of thehouse at the end of the year is therefore €105,000 or $110,526. Here we can see that there is a higher rate of growthin the dollar value of the house, arising from the appreciating exchange rate, in addition to the increase in value dueto local market conditions. The situation for international comparisons of GDP is analogous to this.

There are several important points to noterom these GDP projections:

1. There is a natural segmentationo the countries into two groups:emerging economies (E7 and thenewly emerging economies) with highexpected rates o growth (typically 4% or more per annum including realexchange rate appreciation) and thedeveloped economies (G7) with muchlower rates o growth (typically lessthan 2.5% per annum including realexchange rate changes). South Koreais an intermediate case here betweenthe E7 and G7. We will see a similarE7-G7 growth dierential when weconsider the expected growth rates o domestic banking assets in Figures 4and 5 on P13.

2. Projected changes in population havean important eect on some countries’relative growth rates. For instance,Russia, Japan and Republic o Koreaare expected to experience populationalls, depressing overall GDP growth.Nigeria, Saudi Arabia and India areall expected to experience strongpopulation increases, thereby boostingoverall GDP growth. Some advancedeconomies (e.g. US, Australia) areprojected to have stronger population

growth than some emergingeconomies (notably China due to itsone child policy).

3. The emerging economies’ marketexchange rates are expected toappreciate over time in real termsdue to relative stronger productivity growth (the so-called Balassa-Samuelson eect). This provides a

boost to growth in all o the emergingeconomies when measured inreal US$ terms. Note that this realexchange rate appreciation could arisedue to nominal appreciation and/orhigher infation rates in the countriesconcerned.6

O course, as noted in the previoussection, the precise growth projectionsshown in Table 1 are subject to many uncertainties and should be taken asindicators o economic potential ratherthan precise orecasts. However, thebroad messages discussed above onrelative growth rates o emerging anddeveloped economies seem likely to bemore robust.




7 For the UK, we looked at this issue of excessive publicand private sector debt levels in detail in an articlein our November 2010 UK Economic Outlook report,http://www.pwcwebcast.co.uk/ukeo_nov2010_debt.pdf

8 The average value of outstanding US securitised debtin 2009 has been variously estimated at between $3.6trillion and $5 trillion, or around 25-35% of US GDP.However, whether it is appropriate to consider this aspart of the assets of the banking sector, and whetherthere may be double counting if we just add this intoour measure of domestic credit, is less clear. For thepurposes of this study, therefore, we note this pointbut do not try to add in securitisation assets for theUS or other countries.

Country trends

Developed economies

Figure 4 shows historical trends in theratio o domestic banking assets to GDPor the major developed economies. Thegeneral trend is that o a gradual upwardtrend in the ratio over time rom around50-100% o GDP in 1986 to around100-230% o GDP in 2009. However,there are considerable variations in thesetrends across countries. We can note in

particular that:

• The banking assets to GDP ratioor the UK and Spain has increasedparticularly strongly over the past 7 years, resulting in ratios o over 200%o GDP. This is the result o property booms in these countries as well as therole o leveraged private equity dealsand general expansion o the nancialsector’s role in these highly leveragedeconomies. We consider it most likely that this high level o credit relativeto GDP is unsustainable7 in the long

run, and thereore we project thisratio to all over the coming decadesto one that is more in line with otherdeveloped economies.

• The US has a relatively low ratio o banking assets to GDP based on theIMF domestic credit denition usedhere in comparison with most otherdeveloped economies. This is likely to be due to the act that in the US amuch greater proportion o nancingtakes place through securities marketsrather than through bank lending.8 So whilst there are high levels o leverage in the US economy as a whole, a large proportion o thisdebt will be held by non-bank organisations, and thereore do noteature in this analysis based on theIMF denitions used or this study.

4. Domestic banking

assets – historictrends

In this section we review how domestic banking assetsin the countries o our study have varied over time.This is useul as it oers insights o important dierencesbetween countries and how they are likely to evolve.




• South Korea is an interesting exampleo a country that has changed rombeing an emerging economy intoa developed economy over the last30-40 years. Between 1988 and 2000Republic o Korea had the lowestratio o banking assets to GDP o thedeveloped economies considered inthis study, but this ratio has since risento a level more in line with the otherdeveloped economies. This mirrorsthe broad trends we expect in the

uture rom other emerging economiesthat are currently less ar along thedevelopment track than Republic o Korea (as discussed in Section 5o this report).

E7 Economies

In Figure 5 we show the trend in the ratioo domestic banking assets to GDP orthe E7 countries. We can note rom thischart that:

• China has by ar the highest ratio o the E7 economies. In the past this hasbeen due primarily to high levels o lending to state enterprises, althoughmore recently property-relatedlending has also grown rapidly inChina and state enterprise lendinghas declined in relative importanceas the Chinese economy becomesincreasingly driven by private sectorcompanies.

• Some o the other countries display the eects o past nancial and

economic crises. For instance, Brazilhas two sharp peaks in its ratiocorresponding to its nancial crisisand hyperinfations between 1986 and1994. More recently, however,its economy has been much morestable and its longer term prospectsappear strong.

Figure 4: Ratio of domestic banking assets to GDP indeveloped economies

D o m e s t i c b a n k i n g a s s e t s a s % o

f G D P

n Australia nCanada nFrance nGermany nItaly

nJapan nRepublic of Korea nUK nUSA nSpain

19961991 2001 20061986

50.00

200.00

250.00

150.00

100.00

0.00

Source: IMF


f G D P

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

nBrazil nChina nIndia nIndonesia nMexico nRussia nTurkey

Figure 5: Ratio of domestic banking assets to GDP in theE7 economies

Source: IMF

19961991 2001 20061986




• Indonesia and Mexico have bothdisplayed sustained declining bankingasset to GDP ratios rom 1999 and1997 respectively, with Mexicostabilising around the middle o the2000s. This is most likely an atereect o the Peso crisis (Mexico) andthe Asian crisis (Indonesia), refectinga long recovery and rebalancingo their economies. This result isimportant when we come to considerhow developed economies will recoverrom the nancial crisis, particularly or those that are highly leveraged(e.g. UK, Spain). History suggeststhat it takes a long time or bankingsystems to recover ully rom suchmajor crises.

Newly emerging economies

Figure 6 shows historic trends in bankingasset to GDP ratios in the newly emergingeconomies. Our analysis o thesecountries is limited by the availability o data, but we can identiy somebroad trends:

• Vietnam has shown a strongly increasing ratio since 1998. As inthe case o China, this is most likely due to the large amount o lendingto state owned enterprises in earlierperiods combined with strong growthin property-related lending in morerecent years.

• Argentina has seen a declining ratioo banking assets to GDP during itsgradual and painul recovery rom itsnancial crisis in the early 2000s.

• From the limited data we have orNigeria, we see a air degree o volatility that could originate rom acombination o political uncertainty and its dependence on oil revenues.In absolute terms, Nigerian bankingassets remain low relative to GDPbut have long-term potential i thegovernment can ollow broadly growth-riendly policies and diversiy its economy away rom oil in the longrun. Banking sector development

will be an important element inthis process or Nigeria and otheremerging economies that havetraditionally been heavily dependenton revenues rom natural resources.

Key changes due to the fnancial crisisWe can see varied trends in howeconomies’ ratios o domestic bankingassets to GDP have ared over the

nancial crisis period since 2007. Inmost developed economies this ratiokept on increasing, probably refectinga combination o a decrease/slowdownin GDP and increased lending togovernments to nance their scalinterventions and growing budgetdecits. For the E7 and newly emergingeconomies the ratios also increased, butthis largely refected continued healthy private sector growth ater relatively short cyclical downturns due to the crisis.In addition, some countries such as China

embarked on signicant scal stimulusprogrammes and encouraged higherbank lending to prevent recessionsrom taking hold.

Source: IMF ( no available 1994 data for Vietnam)


f G D P

n Argentina nSaudi Arabia nSouth Africa nNigeria n Vietnam

19961991 2001 20061986

20.00

120.00

140.00

100.00

40.00

60.00

80.00

0.00

Figure 6: Ratio of domestic banking assets to GDP in newlyemerging economies




Projections o domestic banking assetsFigure 7 shows the key result o this report. It shows the projected trend level o domestic credit in the G7, E7 and the World over the period to 2050. We project E7banking assets to grow signicantly aster than those in the G7, and to overtake theG7 around 2036 (compared to around 2044 in our 2007 report on this topic). Thenancial crisis thereore does appear to have accelerated this global shit o economic

and nancial power to the emerging economies. By 2050 the E7’s banking assets areprojected to be approximately 50% greater than those in the G7.

5. Projections o

banking assets and profts to 2050

Source: PwC analysis, IMF

Figure 7: Projections of domestic banking assets in the E7 and G7

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

204920442039203420292024201920142009

nG7 nE7 nWorld

D o m e s t i c c r e d i t ( $ b n 2

0 0 9 p r i c e s )




It’s worth noting that the changes inrelative E7/G7 banking assets are notexactly the same as the relative changeprojected in E7/G7 GDP. The reasonor this in our model is that the ratio o domestic banking assets to GDP also

evolves over time in dierent ways or theE7 and G7, as illustrated in Figure 8. Theaverage ratio in the G7 remains relatively stable over the projection period. In theemerging economies the ratio rises airly quickly initially, but then converges moreslowly on the world average towards theend o the projection period. This is theresult o these economies maturinginto developed economies with slowertrend growth rates by the end o theprojection period.

We also looked at projected changes inlevels o domestic banking assets at acountry level. In Figure 9 we plot thechanges in domestic assets over theprojection period or the US, China, Indiaand Japan. The key results here are thatChina could overtake the US in 2023, andIndia could overtake Japan in 2033. Inour previous analysis published in June2007, China was projected to overtakethe US in 2043, and India to overtakeJapan in 2041. Although the exacttransition dates are open to considerableuncertainty, it seems likely that China willhave the largest domestic banking assetsin the world at some point within thenext 20-30 years and that India will moveclearly into third place by 2050.

Source: PwC analysis using IMF base year data for 2009

nG7 average nE7 average nWorld average

160

140

120

100

80

60

40

20

0


f G

D P

Figure 8: Projected ratio of domestic banking assets to GDP

204920442039203420292024201920142009

0

20,000

10,000

30,000

40,000

50,000

60,000

70,000

80,000

D o m e s t i c c r e d i t ( $ b n 2 0 0 9 p r i c e s

)


nUS nChina nIndia nJapan

Figure 9: Domestic banking assets for the US, China, India and Japan

204920442039203420292024201920142009




Figure 10 shows the projected trends orbanking assets in Japan, Germany, UK,Brazil and Russia. The key point hereis that Brazil’s domestic banking assetsare expected to grow relatively ast overthe projection period, resulting in it

overtaking both Germany and the UK by around 2045. Russia is projected tohave strong growth, but not ast enoughto overtake the UK, Germany or Japan within this period.

In Table 3 we summarise some o thekey overtaking dates mentioned above,and compare them with the results romour 2007 projections. The main pointto note is that the analysis suggests thatemerging economies will overtake thedeveloped economies earlier than we hadanticipated beore the nancial crisis.The exception to this trend is transitionor Mexico and Italy; we project that itis going to take longer or this to takeplace than our 2007 projection hadsuggested. We expect that this is due toMexico’s domestic banking assets nothaving grown as ast as other developingcountries since our last report.

Projected changes in the shares o the world’s domestic banking assets areshown in Figure 11. Our analysis suggeststhat China and India could have a

combined share o around 35% o globalbanking assets by 2050. Other somewhatsmaller emerging economies such asBrazil and Russia will also see their sharesrise signicantly. The US, Japan andWestern Europe are all projected to seelarge alls in their share o global bankingassets in the coming decades.

Country pairsOvertaking year

(2011 analysis)

Overtaking year

(2007 analysis)

E7 overtakes G7 2036 2046

China overtakes US 2023 2043

India overtakes Japan 2033 2041

Brazil overtakes UK 2045 -

Russia overtakes Italy 2039 2047

Mexico overtakes Italy 2048 2038

Turkey overtakes Canada 2045 -

Source: PwC model projections (where no date is shown this indicates overtaking dates beyond 2050)

Table 3: Comparison of previous results with updated results:overtaking years for E7 vs G7 economies


D o m e s t i c c r e d i t ( $ b n 2 0 0 9 p r i c e s )

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

nJapan nUK nGermany nBrazil nRussia

Figure 10: Domestic banking assets for Japan, UK, Germany, Braziland Russia

204920442039203420292024201920142009




We present in declining size order thecurrent and projected uture values in2030 and 2050 o domestic bankingassets or each o the countries weanalysed in Table 4. We see that in2050 China is projected to have clearly

the highest banking assets, with Indiaand Brazil moving up to acquire top 5positions rom the UK and Germany.Mexico and Indonesia make large movesup the rankings over time, while Australiaand Canada all back. The newly emerging economies tend to occupy thelower rankings but with relatively astgrowth rates over time, particularly or Vietnam and Nigeria (although theseare heavily dependent on continuing topursue broadly growth-riendly policiesas discussed in Section 3).

What actors areresponsible or the

speeding up o change?The main reason why the shit o global banking power to the emergingeconomies is now projected to be asterthan in our 2007 report is due to theshort and long-term eects o the globalnancial crisis.

• In the short-term, most developedeconomies experienced a signicanteconomic slowdown or recession in2008-9, reducing signicantly thegrowth o domestic banking assets.

• Emerging economies by contrasttended to maintain relatively high growth rates, although sometemporary economic slowdown wasexperienced in certain cases. In 2010,however, emerging economies grewstrongly in general, while the recovery in Europe in particular remained

relatively weak.

India

China

US

Japan

Russia

France

Germany

UK

Brazil

Italy

Spain

Canada

Australia

Republic of Korea

Mexico

Indonesia

Turkey

S. Arabia

Argentina

S. Africa Vietnam

Nigeria

25.020.015.010.05.0

1.1%0.1%

1.0%0.4%

1.1%7.3%

1.3%1.4%

12.2%1.4%

0.9%0.4%

2.5%5.0%

1.6%0.3%

2.2%0.6%

1.5%2.4%

1.4%

0.2%

1.8%4.8%

1.7%0.5%

3.4%1.5%

1.2%1.9%

22.9%8.8%

14.8%21.7%

0.7%0.1%

2.7%6.5%

1.9%0.4%

3.8%11.0%

1.6%4.8%

0.0

n2050 share n2009 share

Source: IMF data for 2009, PwC model projections for 2050

Figure 11: Share of total global banking assets




Countryrankingsin 2009

Domesticassets 2009(US$ bn,constant2009 prices)


Domestic assets2030 (US$ bn,constant2009 prices)


Domesticassets 2050(US$ bn,constant2009 prices)

1. US 14,772 1. China US 1. China 72,228

2. Japan 7,486 2. US Japan 2. US 46,544

3. China 6,006 3. Japan China 3. India 38,484

4. UK 4,989 4. India UK 4. Japan 11,959

5. Germany 4,416 5. UK Germany 5. Brazil 10,624

6. France 3,401 6. Germany France 6. UK 9,112

7. Spain 3,271 7. France Spain 7. Germany 8,477

8. Italy 2,993 8. Italy Italy 8. France 7,909

9. Canada 1,618 9. Brazil Canada 9. Russia 6,811

10. Australia 1,324 10. Spain Australia 10. Mexico 5,965

11. Brazil 1,019 11. Russia Brazil 11. Italy 5,601

12. India 945 12. Canada India 12. Turkey 5,502

13. Republic of Korea 935 13. Republic of Korea Republic of Korea 13. Indonesia 5,129

14. Russia 413 14. Australia Russia 14. Spain 4,992

15. Turkey 352 15. Mexico Turkey 15. Canada 4,761

16. South Africa 250 16. Turkey South Africa 16. Vietnam 4,426

17. Saudi Arabia 244 17. Indonesia Saudi Arabia 17. Republic of Korea 4,191

18. Mexico 241 18. Saudi Arabia Mexico 18. Australia 3,812

19. Indonesia 187 19. Vietnam Indonesia 19. Nigeria 3,51420. Vietnam 113 20. South Africa Vietnam 20. Saudi Arabia 3,303

21. Argentina 86 21. Argentina Argentina 21. South Africa 2,722

22. Nigeria 47 22. Nigeria Nigeria 22. Argentina 2,205

Source: IMF for 2009, PwC model projections for 2030 and 2050 (note the rankings relate only to these 22 countries; we would not rule out other developed countriesfeaturing in the rankings for some time periods although these are likely to lose ground to the emerging economies over time).

Table 4 Global leader board of domestic banking assets in 2009, 2030 and 2050




• Developed economies’ nancialsystems came under severe stressdue to the crisis. The value o assets declined sharply and somenancial institutions aced potentialbankruptcy and had to be bailed out

by governments. Emerging economiesby contrast were relatively shieldedrom these eects, leaving theirbanking systems in much better shapeto und long-term economic growth.

• The nancial crisis thereore led toa general downward revision or theestimates o sustainable trend growthacross many developed economies,but little change in long-term trendgrowth projections or the majoremerging economies (or evenupgrades due to the crisis revealingtheir greater resilience relative toearlier crises that oten tended toocus on emerging economies such asLatin America in the 1980s and early 1990s or Asia in the late 1990s).

Banking growthdierentials betweenemerging anddeveloped economies

The strong growth in emergingeconomies’ domestic banking assets canbe seen in Figure 12 where we plot thecompound annual growth rate o thedierent economies domestic bankingassets. Here we note that the emergingand developed economies can bedivided into two groups: the developedeconomies appear to have low growth(e.g. rom US upwards in the chart), whereas emerging economies tend tohave high growth rates, with Republic o Korea as an intermediate case as with our

long-term GDP projections.

Mexico

Argentina

Nigeria

Vietnam

India

Indonesia

Russia

Turkey

Brazil

S. Africa

China

S. Arabia

Republic of Korea

US

Canada

Australia

France

Germany

Italy

UK

Japan

Spain

121086420

Source: PwC model projections

Figure 12: Average annual real growth rates of domestic bankingassets 2010-2050 (% pa in US $ terms)




In our model the level o the quantity o banking assets is determined by boththe overall size o the economy andthe rate o growth in GDP per capita, which is assumed to translate into a risein the ratio o banking assets to GDP

as economic development proceeds.Stronger rates o growth in both o these variables push up emerging economy banking assets in our model. Nigeria,India, Vietnam, China and Indonesiahave the highest rates o growth inGDP and GDP per capita in our sampleand this translates to strong growth inbanking assets as well, albeit subject tomany uncertainties as discussed aboveand dependent on continuing to pursuebroadly growth-riendly policies in thesecountries.

As described in Section 3, this growthis generally driven by improvementsin physical and human capital inemerging economies and catching up with technology levels in developedeconomies. We also expect the realmarket exchange rate o all the emergingeconomies to appreciate over time tocome in line with purchasing powerparity estimates. This increases bankingassets measured in $ terms in all theseemerging markets. Population growthalso contributes positively to growth inIndia, Vietnam, Indonesia and Nigeria.There is a much lower contribution rompopulation growth in China as a result o its ageing population and its onechild policy.

Figure 13: Net interest margin by country (2008)

Turkey

Indonesia

Brazil

S. Africa

Argentina

Russia

Nigeria

Mexico

ItalyRepublic of Korea

S. Arabia

US

China

Germany

France

India

Vietnam

Canada

Australia

Japan

UK

Spain

1614121086420

Source: Fitch

Average NIMs by country group

G7 weighted average = 2.6%E7 weighted average = 4.1%

All, weighted average = 2.8%




Banking profts projectionsBased on our projections or bankingassets in each economy we can estimatethe potential prots o the banking sectorassociated with these assets. We haveused data rom Fitch on the net interestmargin (NIM) or banks in the dierenteconomies as a measure o protability.We have used net interest margin as anindicator because we expect it to be less volatile in times o economic stress thanreturn on assets (RoA), which we used

in our 2007 Banking in 2050 report.NIM is also a more direct measure o theincome rom banking assets, which wecan then relate to the long-term changesin the economy. Alternative measures o protability such as RoA tend to includeother sources o income such as ees, which we cannot always relate directly tothe ownership o bank assets.

In Figure 13 we present estimated averageNIMs or our 22 countries in 2008. In ouranalysis we use these values as a proxy orthe 2009 values and then linearly project

them so that they converge to a weighted

average9 o NIMs over 2004-200810 by 2030. We use the 2008 values so as tostart rom a position that refects thecurrent economic situation as accurately as we can. We use a weighted average orthe convergence value o the NIM basedon 2004-08 data rather than 2008 dataalone because this provides a more robustbasis or the long-term projections due topotential short-term distortions to NIMlevels in 2008 rom the nancial crisis.

From Figure 13 we can see that Brazil hasa particularly high NIM, making it a clearoutlier rom the rest o the countries.There are a number o reasons why thismay be the case: or example, Brazilhas many banks still operating at loweconomies o scale, keeping costs high;a large portion o lending is directed tohouseholds limiting the opportunitiesor wholesale nancing, and Brazilhas been subject to episodes o highinfation in the past. In our convergencescenario we expect that, as Brazildevelops, its banks will see lower NIMsas a result o increasing competition,

increased nancial sophistication and therealisation o scale economies.

Some emerging economies such asChina, India and Vietnam tend to have

relatively low NIMs. We expect that thisis a result o the relatively high levels o lending to state companies. Such activity is likely to result in reduced bankingprots as capital is oten allocated toachieve political objectives rather thannecessarily pursuing the most protableopportunities (as would otherwise occurin a ree market). Over time, however,lending to the private sector is becomingmore important in these economies andprotability levels should tend to increaseover time.

Finally we note that most developedeconomies tend to have lower NIMs, whereas emerging economies exhibit abroad range. However, almost all o thehigher value NIMs belong to the emergingeconomies. The US is interesting in thatit has the highest NIM or the developedeconomies, which could be a refection o its many regional banks.

Projecting our NIM measures to 2050 wecan investigate how protable bankingsectors could be by 2050 (Figure 14). The

key point rom this graph is that the E7sees a large increase in its share o globalbanking prots in relation to the G7over time. The E7’s prot pool is around50% larger than that o the G7’s by 2050having already not been ar behind in2030. In our last report we expectedthis E7 vs G7 dierence in 2050 to bearound 25% (based on prots analysisderived rom RoA), but the short andlong term eects o the nancial crisis hasintensied this trend.

ource: PwC analysis drawing on base year data from Fitch and the IMF

n2010 n2030 n2050

0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000

E7

G7

igure 14: Illustrative banking prots pool projections for the E7nd G7 based on net interest margins on assets (at constant 2009 US $)

Net interest income on domestic assets (constant 2009 $bn)

9 We use the country’s domestic assets in 2009 as the weights in the weighted average calculation.10 Our weighted average of NIMs includes the NIM for Brazil.




The conclusion rom ouranalysis is that shits romthe G7 to the E7 in the global shares o domesticbanking assets and related

profts are accelerating ollowing the fnancialcrisis. However, our analysis

also raises questions asto how the global banking industry will evolve over thenext ew decades. To addressall o these issues wouldtake us beyond the scope o this report. In this section,

however, we outline somekey questions arising as a stimulus or uture debate.

How are banking systems going to adapt?How will banking and nancial systemsin emerging and developing economiesevolve in response to the rising

signicance o emerging economies?For instance where will all the new capitalto underpin these additional bankingassets come rom? Will it come romdomestic sources or will we see increasedlevels o international capital fows?

As the emerging economies develop they will require increasingly sophisticatednancial services and banks are likely toexpand to meet this need and reap thebenets o greater economies o scale asa result. This then throws up questionsabout the strategic options and scenarios

that banks in emerging and developedeconomies should be looking at, as well ashow policy-makers should respond to thischallenge. For example:

• Will we see increasing consolidationin markets that take smaller shares o the global pot (e.g. Europe)?

6. Conclusion and

key questions




11 “The Day After Tomorrow”, http://www.pwc.co.uk/eng/publications/the_day_after_tomorrow_pwc_perspective_on_the_global_nancial_crisis.html

12 “The Future of Banking”, http://www.pwc.co.uk/eng/publications/the_future_of_banking_july_ 2009.html13 “Operating in the Future: Is your operating vision clearly dened?”, http://www.pwc.co.uk/eng/publications/

operating_in_the_future.html14 “The New Rule of 10%”, http://www.pwc.com/us/en/nancial-services/publications/viewpoints/viewpoint-US-

savings-rate.jhtml

• Will we see overseas expansion o banks rom the emerging economies(e.g. ollowing the earlier approacho some universal US and UK banks in

global markets), or will they tend toocus their operations mostly withintheir own home economies or as asupport to the overseas trading o domestic companies (e.g. ashas tended to be the case or theJapanese banks).

• Will economies develop market orbank oriented nancial systems?Could we, or example, come tosee more nancial intermediationthrough banks, or will we see greaterdisintermediation? How will this

aect incumbent banks in thesemarkets and potential entrants?

• How can established banks romemerging economies tap into themarkets where expected protsare highest? Will policy-makers inemerging economies open up theirmarkets to oreign competition?

In our reports “The Day AterTomorrow”11, and “The Future o Banking”12 we reviewed some o theseissues, ocussing on the key questions

that will shape the strategies o banksas they recover rom the nancial crisis.With signicant changes in the bankinglandscape already in progress, it willbe important or banks to adapt theirstrategies accordingly.

What eects rom the nancial crisis willhave long lasting eects?

Economic volatility rom the nancialcrisis still remains, with high levels o leverage still in place in many developedeconomies. This poses important

questions as to how the global bankingindustry will change in the longerterm as a result o the nancial crisis.For example:

• How long will it take or the majordeveloped economies to recoverully rom the crisis? With many economies still bearing high levelso debt, how long will it be beorethey return to more sustainablelevels? We saw in Section 4 that some

emerging economies that had in thepast experienced severe nancial/economic crises (e.g. Mexico, Argentina and Indonesia) had long

recovery periods in excess o 5 years,as shown in the decline o theirdomestic banking asset to GDP ratiosor many years ater these crises. Wealso saw particularly high levels o domestic assets relative to GDP inSpain and the UK. The lesson romhistory may be that it will take a longtime or these countries to deleverageollowing the crisis and return theireconomies and banks to a healthy position (the problems o Japan sincethe early 1990s is another examplehere o how long such adjustment cantake ater a banking crisis, althoughthat was an extreme case).

• Changes in regulation since thenancial crisis will play a prooundrole in the development o thebanking industry going orward.For instance, increased capitalrequirements rom the Basel IIIregulations and associated nationalchanges, which are designed toincrease the level o buers in thenancial system, could see decreased

protability o banks. However, therules are not complete and the ullimpact o these regulations will take years to understand. Despite this, theireects are likely to be elt, at least inpart, almost immediately as regulatorsand market counterparties hold banksto the new requirements. In addition,it is likely that urther banking andnancial sector regulations and oramendments to existing regulations will be implemented at national and/or international level. Thereore the

regulatory outlook and its impactremain very uncertain or thebanking sector.

• Such signicant changes in thebanking industry will aect the way that banks operate, and how they structure themselves to deliver theirservices. We ocussed on this in ourrecent publication “Operating in theFuture”13, where we reported on thechallenges acing banks in reorming

their business models in the post-crisisenvironment. Such large changesrequire a comprehensive look rom allangles o a bank’s business rom how

it supports its people and operationsthrough to its governance, legal andtax structures.

Other socio-economicissuesOver the projection period we can expectto ace substantial socio-economicchallenges that may aect the type o borrowing and lending required. Issuessuch as ageing societies, increasingdemand or natural resources, the eects

o climate change and the move to a lowcarbon economy will all pose challengesto the banking industry but also createpotentially signicant new businessopportunities.

In ageing societies, or instance, we mightexpect to see changes in the balancebetween consumption and saving. How will increasing dependency ratios ineconomies with ageing populations aectthe demand or credit and saving? Asincreasing proportions o the population

draw down their wealth or consumptionin retirement, where will this money be spent? How will banks managethis transition and how will it aectprotability in the sector? In our recentpublication “The New Rule o 10%” weexamined the likely drivers and possibleimpacts on nancial institutions in the USrom changes in the saving rate. In thisreport we identied the need or nancialinstitutions to re-examine their strategies; whether it be changing business models,development o wealth managementservices, or becoming less reliant onconsumer lending and transactionsrevenue.14

While we expect these socio-economicdevelopments and issues to determinethe range o nancial services indierent economies, however, they donot aect the broad conclusion o a shitin economic power rom the developedto the emerging economies that is thecentral theme o this report.




Long-term economic growth modelThe model used to project long-termeconomic growth in this paper isdescribed in detail in our earlier series

o “The World in 2050” reports.The model is a standard one in theacademic research literature in whicheconomic growth is driven by ourmain actors eeding into an aggregateproduction unction:

• Technological progress, including‘catch-up’ eects or emergingeconomies that vary according totheir state o institutionaldevelopment and stability;

• Demographic change, in particular

the growth rate o working agepopulation;

• Investment, in plant, machinery,buildings and other physical assets, which contribute to the long-termgrowth o the capital stock in theeconomy; and

• Trends in education levels, whichare critical to the quality o the labourorce and their ability to make themost o new technologies.

The assumptions used in this modelrefect a broad range o research by bodiessuch as the IMF and the World Bank, as well as leading academic economists.While any such assumptions are subjectto many uncertainties, we believe that the

baseline economic growth scenario usedin this paper is plausible.

Exchange rate projectionsPurchasing power parity (PPP) exchangerates are assumed to remain constantover time in real terms, while marketexchange rates converge gradually overtime to these levels in the very long-term (due to aster productivity growthin the emerging economies relative to

the developed economies). This meansthat the relative value o E7 and otheremerging banking markets in dollar termstends to rise in the long run due both toaster economic growth in these countriesand to projected real exchange rateappreciation.

Annex: Methodology

and data




Banking assets dataand projectionsFor banking assets, we used data ontotal domestic credit (to households,companies and government) since thisseemed most likely to be related to GDP.For consistency, all such data were takenrom the latest online version o theIMF’s International Financial Statisticsdatabase.

Using the results rom our 2007 analysis, we see a clear and statistically signicantpositive relationship between GDP percapita growth and the average annualrise in the domestic credit to GDP ratio.In other words, the aster an economy develops, the aster its banking sectorgrows relative to the economy as a whole.

This relationship is measured usingIMF data over several decades in mostcases, which gives some reassurancein projecting orward a broadly similarrelationship in the long-term. In practice,

o course, this will not be a smoothprocess: there will be economic and creditcycles o varying length and severity in all countries that we cannot hopeto predict with any accuracy. We can,however, look through these short-to-medium-term cycles to identiy plausiblescenarios or the long-term underlyingtrend in banking sector assets by country,and here we are more condent aboutmaking broad projections based on theunderlying trends seen in the historicdata. This is particularly true when

looking at portolios o countries such asthe E7, within which individual country variations in the long-term health o thebanking sector should tend to cancel outover time.

In our 2007 analysis, we carried out a variety o statistical analyses o trendsin the banking assets to GDP ratio overtime and across countries, using GDPper capita levels as the key explanatory variable. For the purposes o providinga basis or uture projections, we oundthat simple cross-sectional relationships

tended to produce more plausible

results than more sophisticated paneldata analysis, which suered romsome econometric problems due toautocorrelation o residuals. Ater someexperimentation, a log-linear relationshipbetween domestic credit to GDP ratiosand GDP per capita levels in PPP termsprovided the preerred basis or ourprojections model. We ound a highly statistically signicant (at the 99% level)positive relationship between thesetwo variables. As the most recent data

points available in 2008-9 are subject todistortion due to the nancial crisis, weused the original relationship betweenthe growth in the ratio o domestic creditto GDP and GDP per capita growth inearlier years to ensure that the long-termprojections were not refecting mid-crisisconditions.

Given our projections or GDP per capitain PPP terms, we were thereore able toproject orward a ‘target’ domestic creditto GDP ratio or each country, with theexception o the US, where we used a

country-specic time series trend. Forthe other countries, we then assumed inour baseline scenario that their actualdomestic credit to GDP ratios convergedgradually to their target ratios, with 2% o the dierence being eliminated each yearon this convergence path. For China, weassumed a somewhat higher convergenceratio o 3%, since there is evidence romthe past couple o years that the ratiois likely to decline more rapidly in theshort-term due to past problems withnon-perorming loans being corrected,

although the ratio should then rise againin the longer term as the retail lendingmarket in particular grows rapidly. Wealso assumed higher convergence ratesor the UK, Spain and Australia o 4.5%,4.5% and 3% respectively. The rationaleor this is that in the past ew years thesecountries have seen sharp increases inthe levels o domestic assets relative toGDP that we expect to all back over thecourse o the projection period to moresustainable levels in the long-term.

A maximum limit o domestic credit o 250% o GDP was imposed in our modelrefecting our assumptions on the upperlimit to a sustainable level o debt in aneconomy. Under ordinary conditions we would expect debt levels to remain lowerthan 200% based on the experience inSwitzerland (where the ratio appears tohave topped out at around 180% over thepast decade) and analysis o minimumplausible interest cover ratios based onUS and UK data. However, recent data

in the UK and Spain show domesticbanking asset to GDP ratios in excesso 200%. Thereore we have raised ourmaximum ratio limit, but imposed higherconvergence rates on these two countriesto refect our view that their overall levelo assets will all to more sustainablelevels in the long run as described above.

Banking profts dataand projectionsOur data on banking prots were sourcedrom Fitch and covered the leading banksin each o the countries included in ourmodel. We used net interest margin(NIM) as a measure o prots, instead o return on assets (RoA), which we used inour 2007 analysis. The rationale or thisis that net interest margin is likely to bea less volatile measure o banking protsthan return on assets and thereore is abetter starting point or setting long-termprojections.

We assumed a scenario o linear

convergence rom the net interest marginratios shown in Figure 13 to a global weighted average net interest o 3.1%rom 2030 onwards. This can be takento refect the impact o cross-bordercompetition and M&A in normalisingprots across the banking sectors o themajor world economies.

This net interest margin scenario wasthen combined with our GDP growth anddomestic credit to GDP ratio scenarios toproduce banking prots pools projectionsin the G7 and the E7 economies, as

summarised in Figure 14 in the main text.



AuthorsJohn Hawksworth Chie EconomistPwC UK

+44 20 7213 1650 [email protected]

Douglas Niven PwC UK +44 20 7804 [email protected]

EditorNick Page PwC UK +44 20 7213 [email protected]

PwC Global FinancialServices LeadershipTeam

Nigel Vooght Global Financial Services LeaderPwC UK +44 20 7213 [email protected]

Barry Benjamin PwC US+1 410 659 [email protected]

Antony Eldridge PwC UK +44 20 7804 [email protected]

James Flanagan PwC US+1 646 471 5220 [email protected]

Craig Hamer PwC UK +44 20 721 [email protected]

David Law PwC UK +44 131 524 [email protected]

David Newton PwC UK +44 20 7804 [email protected]

Dominic Nixon PwC Singapore+65 6236 [email protected]

Phil Rivett Global Financial Services ChairmanPwC UK

+44 20 7212 [email protected]

Robert Sullivan PwC US+1 646 471 [email protected]

Jon Terry PwC UK +44 207 212 4370 [email protected]

ContactsThe authors o this report are John Hawksworth, Head o Macroeconomics, PwC (UK)and Douglas Niven o the PwC (UK) Economics Practice, who also made an importantcontribution to the economic research underlying this report. The main editor o thereport is Nick Page, Partner, Transaction Services, Financial Services PwC (UK).

The PwC economics practice oers a wide range o services, covering competition and regulation issues, litigation support, bidsand business cases, public policy and project appraisals, nancial economics,the economics o sustainability and macroeconomics.

For more details o these services, please visit our website: www.pwc.com/uk/economics

I you would like to discuss the issues raised in this report in more detail, please contact your usual PwC contact oranyone o those listed.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the informationcontained in this publication without obtaining specic professional advice. No representation or warranty (express or implied) is given as to the accuracy or completenessof the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or dutyof care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

For more information about this report contact Áine Bryn, Global FS Marketing, PwC UK, on +44 207 212 8839 or at [email protected]. For additional copies contactMaya Bhatti, Global FS Marketing, PwC UK, on +44 207 213 2302 or at [email protected]



www.pwc.com/fnancialservices

pwc banking in 2050 - may

Documents