In a survey of data from 300 banks in 79 countries, the consultancy says that banks’ inability to get their returns above their cost of capital will deter new investment, cutting down the availability of credit on which growth depends.
The report says: “If... the banking industry in the developed world cannot achieve dramatic performance improvement, then it will not earn a sufficient [returns] to attract the required level of equity and long-term debt capital needed to support lending to the real economy.”
It adds: “Economic growth will be constrained by credit shortages that will particularly hit households and small businesses without access to capital markets.”
The report calls the new onslaught of regulation “the single largest driver” of the profit conundrum for banks in the developed world.
Historically, only nine per cent of banks have managed adjustments on the scale necessary to succeed, McKinsey says, such as mass lay-offs and closing branches.