The decline in net interest margins—exacerbated in some cases by structural issues such as overbanking, high operating costs, and lack of diversification—has driven banks to look beyond lending for growth and revenue opportunities.
The pace of change has varied greatly by region, mainly because of differences in regulatory constraints, banking systems' health, and the ability and willingness of individual institutions to change. The paths banks have taken to generate more revenue have varied as well, but they generally focus on fees and commissions income. Some banks have diversified to become financial "supermarkets" providing wealth management, insurance, private equity, and brokerage trading. Others have taken niche approaches.
"Banks have been exploring new opportunities out of necessity," said Loubna Moudanib, a credit analyst for Europe based in London. "We've seen everything from Spanish banks maintaining and increasing their exposures to emerging markets, to Nordic banks charging corporate customers to hold money in their checking accounts, to Asian banks acquiring stakes in ride-hailing apps, digital banks, and e-commerce firms."
These efforts to find profits from activities other than lending have generally been successful. Along with unprecedented amounts of pandemic-related monetary and fiscal stimulus, the new activities have supported return-on-equity ratios—although those ratios still vary significantly by region.