// . //  Insights //  Corporate And Transaction Banking Outlook For 2023

For Corporate and Transaction Banks, 2022 was a challenging operating environment: they faced a perfect storm of inflation, rate rises and geopolitical risks. However it was ultimately a strong year for the business, with revenues up almost 10% globally, benefiting from NIM expansion and economic recovery. Now, just a few weeks into 2023, we face another uncertain year with the industry barometer trending between ‘cautious’ and ‘cautiously optimistic’. China re-opening, lower energy costs due to the warmer winter and major climate, fiscal and policy action stimulating demand. All of these factors (and more) suggest that 2023 can drive profitable growth for corporate and transaction banks – although it will could still be a tightrope walk between rate-driven growth and managing credit quality. This tension will require management teams to be both resilient and nimble while staying the course on longer-term transformation.

Against this backdrop, we see management teams focusing on five key priorities for 2023 and beyond:

1) Managing through the cycle. As inflation and higher financing costs bite, credit quality is deteriorating, particularly among SMEs and highly leveraged corporates. At the same time many corporates are cash rich and can ride the cycle. This will require analytical precision on identifying winners and losers, proactive actions on restructuring, and tightening underwriting standards. The rising rate environment has created significant NIM expansion opportunity though banks are increasingly challenged by deposit outflows. Leading banks are managing deposit repricing using data driven deposit pricing and steering approaches, that account for liquidity value, relationship value and customer elasticity. They are also rethinking focus segment strategies, and developing payments products and digital experiences that help them differentiate on factors other than price.

2) Powering sales excellence. Commercial effectiveness is key to driving growth and client-centricity. Leading banks are now focusing on building the coverage model of the future: to be more client-centric, sector-focused and solutions-oriented. They are investing in next-generation sales analytics to identify client opportunities and help relationship managers become more productive. Added to this there is a sharp focus on improving pricing and commercial practices: from rolling out relationship pricing models, to experimenting with subscription pricing, and monetizing data and channels.

3) Driving digital transformation. This theme is not new, but the focus in 2023 will be on accelerating the pace of transformation, whilst keeping laser focused on delivering benefits – not only profitability for the banks, but also in customer experience. Billions of dollars are being invested in next-generation channels and technology modernisation to develop modular, cloud-based systems. The spotlight has also turned onto automating and improving core processes, including end-to-end lending, onboarding and client servicing. The acid test will be whether the investment delivers real benefits. Despite a somewhat constrained cost environment, for banks to stay competitive in the future, they will will need to stay the course on these multi-year investments.

4) Delivering on climate ambitions. If 2022 was about setting targets, 2023 has to be about making them happen. We see a huge focus on pivoting to operationalisation of climate and ESG ambitions. The climate transition is not just an imperative, it is also a once-in-generation commercial opportunity for banks: by 2030 the world will need $5TN annual capital investment in transition, and commercial banks will play a key role in financing this. Therefore, the focus is on mobilising the commercial machine to deliver this: identifying sector pivots, developing innovative climate propositions, enabling relationship managers, and embedding climate in all decision-making. 2023 will be an important foundational year to engage the frontline and build tangible commercial plans.

5) Seeding long-term strategic bets. Whilst much of the focus will be managing through the cycle, management teams will also need to keep focused on long-term growth. Peers are focusing on a range of initiatives: driving group-wide payments growth and collaboration, including links with acquiring; launching Banking-as-a-Service (BaaS) and platform ventures; developing deep sector solutions and partnerships in key growth sectors; and investing in shaping emerging payments rails and central bank digital currencies. Key to success will be focus – picking bets based on right to win – and scaling.

How the market plays out in 2023 will largely be determined by macroeconomics and government policy, yet many of the levers affecting individual bank performance are within management control. Leaders will deliver with discipline on in-year performance, whilst staying the course on long-term transformation and growth initiatives.