‘Purpose’ to determine the delivery of long-term value: KPMG Global Banking CEO Outlook

ESG ascends in boardroom agendas; cybersecurity and tax risk top threats to the banking sector

ESG ascends in boardroom agendas; cybersecurity and tax risk top threats for banks

Kuwait, 20 February 2022

  • Bank CEOs optimistic of sector’s growth; less certain about global economy, KPMG reports
  • ‘Purpose’ to determine the delivery of long-term value: KPMG Global Banking CEO Outlook
  • ESG ascends in boardroom agendas; cybersecurity and tax risk top threats: KPMG

Kuwait - March 2022

The after-effects of the COVID-19 pandemic transformed the business landscape, pushing financial service providers, among others, to change how they did business. In its annual Global CEO Outlook report, where about 135 bank CEOs were surveyed, KPMG discovered a surging optimism fueled by an innovation-based approach and innate commitment to organizational purpose.

Drawing from the perspectives of the CEOs, the Global Banking CEO Outlook report points out that the boardroom has been consistently confident despite the changes brought upon by the pandemic. There is an increasing belief that instilling the right culture, value, and employee engagement is as crucial as, if not more, driving financial performance. According to the report, bank CEOs will be looking to mitigate top threats in cybersecurity and tax risk while also adopting inorganic strategies and embedding purpose into the very core of their being to ensure that they are on the growth path.

Key highlights

The recovery roadmap

About 89% of the bank CEOs agree that over the next three years, purpose will have the most significant impact on capital allocation, partnerships and merger and acquisition (M&A) strategies. They are cognizant of the fact that to deliver long-term value to customers, employees and stakeholders, they should not only re-evaluate their purpose but also underpin it in their business strategies. While they may not be certain about the growth of the global economy, 75% of the bank CEOs feel that the economic growth outlook for the banking sector is positive in the three-year horizon.

Engaging employees for stability

CEOs understand that for their organizations to withstand the growing uncertainty in the business landscape, stability is critical. They recognize employee value proposition as a key driver of their organization’s growth prospects and are, therefore, stressing on investments toward employee well-being, upskilling them, fostering a culture that engages them and promoting flexible working.

Gearing for growth

The mutual belief among bank CEOs is that they need to build on inorganic strategies, while constantly adapting to the changing trends of the market, to stay on the growth trajectory. With 67% of the CEOs looking to invest in acquiring newer, more improved technologies, it is imminent that they understand the importance of leveraging digital opportunities and having a competent roadmap to attain the first-mover/fast-follower status. Additionally, 68% of the banks showed interest in joining industry consortia committed to innovation-based development to drive progress in their organizational goals.

Assessing the barriers to growth

Cybersecurity climbed from third in 2020 to emerge as 2021’s top-most threat. The outcome was propelled by rapid digitalization coupled with remote working. Tax risk remained a close second on the list, rising by 13 percentage points in 2021 as compared to 2020, owing to the rise in impact of international as well as domestic tax reforms on financial services. The CEOs, however, are mindful of the top threats to growth and are working in the direction of averting threats related to cyber risks, service disruptions resulting from technical failures and reputational risks arising from data privacy issues. As banks looked to improve and add to their cloud capabilities, almost half (44%) of the CEOs acknowledged that they were keen on putting capital toward secure and resilient cloud-based technologies.

Telling the ESG story

About 58% of the bank CEOs witnessed a rise in demand with respect to reporting and transparency pertaining to ESG issues. Almost half of the surveyed bank CEOs (44%) said that articulating their ESG story was particularly challenging. Moreover, they feel the lack of a global agreement on harmonized disclosures, combined with the development of multiple disclosure standards and frameworks, has only taken away from the ease of data collection and reporting. But this might change when the International Sustainability Standards Board (ISSB) puts together the IFRS® Sustainability Disclosure Standards.

Piloting new roles

Considering the patterns observed in fintech investment in 2021, it is anticipated that investment in the sectThe upsurge in social tension over the past two years, amid the race to digitalization, is causing more CEOs to take up roles that their organizations can play to enable total shareholder and societal returns. The common consent among 73% of the CEOs is that the onus is on them to address social issues and it will only increase progressively.

The report concludes that in addition to the pervasive optimism in the boardroom, CEOs feel more bound to their organization’s purpose than ever. Their goal is to come out stronger than they were earlier. The ask for a sustainable transformation that is encouraging of long-term growth remains, leaving future banks with ample reasons to pursue agility and innovation, and continue collaborating with stakeholders to make for resilience and growth.or will continue to be robust in 2022. Activity in the lesser developed fintech markets such as Southeast Asia, Africa and Latin America is also expected to pick up pace, with the Middle East forecast to grow majorly in the payments space. Additionally, growth in the M&A sector is highly likely considering the surge in deal values, given that corporates and fintechs are bent on growing and scaling up. It is predicted that the interest will increasingly shift toward fintech-focused ESG solutions and banking replacements that can cater to the need for modernization of core banking platforms. It is likely that more businesses will look past just being fintech institutions and rebrand themselves as data companies.