- The banking sector outlook is highly dependent on the Fed’s policy decision in 2024: maintain high rates throughout 2024 or pivot in H2-24. For the banking industry, these two scenarios pose different risks. Prolonged high interest rates imply threats to liquidity and asset quality, while a rate decrease signals potential disruptions on the profitability front.
- Slowing commodity prices and tightening global liquidity mean that external liquidity sources for banks cannot be relied upon in the coming year. Meanwhile, money creation through credit may still be limited, and the main hope lies in an “outflow” of liquidity from the public sector to other sectors.
- Bank profitability will be affected by the possibility of declining interest rates, which could impact interest income. Our concern is focused on two trends in banking statistics (Sep'23): (1) the growth of interest expense surpassing interest income, and (2) a moderate rise in operating expenses (OPEX) in H2-23. In a scenario where these trends continue into 2024, fee-based income becomes a crucial component for maintaining profit levels. Unfortunately, the outlook for fee-based income is not without challenges. Shifting towards the broader use of cheaper integrated payment channels may (1) enhance financial inclusion, benefiting the banking sector, but it also (2) imposes a ceiling on fees per transaction for banks. Additionally, with digital platforms potentially minimizing their burn rate next year, we anticipate transaction growth to be somewhat subdued compared to the past two years.
- All in all, credit growth may still be supported due to several factors: (1) Real sector activities are quite robust until the end of 2023, and the upcoming election could provide an additional boost to the domestic economy; (2) Inflation and nominal GDP’s potential acceleration; (3) Continued strong appetite for CAPEX can spur demand for imports. Meanwhile, the prospects for deposit growth are much more limited due to pressure on domestic liquidity. Our forecast for credit in 2024 is a 10 - 11% YoY growth, and deposits are expected to grow by 8 - 9% YoY.
