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GLOBAL 2016: Local economic factors impact bank performance

Oil industry loans erode results in North America

The BrandZ™ Regional Banks Top 10 declined 12 percent in value, compared with a 1 percent rise a year ago. Except for HDFC, an Indian bank that joined the category ranking for the first time, each regional bank brand declined in value.

The composition of the BrandZ™ Regional Banks Top 10 suggests how a combination of local and global economic factors drove these results; four of the local banks are Chinese, four are North American (two US and two Canadian); one is Australian and one (HDFC) is Indian.

The decline in value of the Chinese banks primarily reflects the slower growth of the Chinese economy and problems with non-performing loans. But the brands are also negatively impacted by the entrance of Chinese social media brands into financial technology, particularly with payment systems.
As more Chinese companies expand abroad, encouraged by government programs to build global brands, the Chinese banks should become hedged against the fluctuations of the Chinese economy. The International Monetary Fund added the Chinese renminbi as a key global currency, elevating it to the status enjoyed by the dollar, euro, pound and yen.
The local economy and the slowdown in China were among the factors impacting Australian banking. The appearance of India’s HDFC reflects consumer confidence, liberalized regulations and government programs drawing investment to improve India’s infrastructure.
In North America, the Canadian and US banks enhanced customer service and expanded digital and mobile banking. However, lower interest rates, regulatory pressures and exposure to oil and gas industry loans hurt performance. And the strength of the US dollar impacted Canadian bank results.
Customer experience
In its US operation, Canada-based TD developed and implemented a strategy aimed at differentiating the bank with a reputation for positive customer experience and convenience, including banking hours during the weekend. Using the tagline “America’s Most Convenient Bank”, TD communicated a message around customer service, particularly to upscale clients. The bank was successful in cross-selling customers its various offerings, which particularly helped grow the bank’s wealth management businesses.
RBC, Canada’s largest bank, advanced its expansion into the US with the acquisition of City National Bank. It also responded to the challenge of financial technology disruptors, with about 5 million customers banking digitally each month, 2 million of them using mobile devices. The bank also introduced a mobile wallet.
Wells Fargo operated in over 8,600 locations throughout the US, with concentrations on the east and west coasts. The bank has substantial interests in the oil and gas business, with over 625 customer relationships totaling, around $42 billion oil and gas loans and other exposure.
Wells Fargo was one of several major US banks that failed to meet the stress test requirements of the US government. US bank, which operates over 3,100 branches in 25 states, increased commercial loans, and also felt the impact of loan exposure in the oil and gas industry.
Innovation in other regions
Banks in other regions of the world added innovations. In South Africa, banks partnered with technology companies to engage customers with useful services, including mobile payment apps. Standard Bank and Absa focused on digital transformation, trying to understand customers across digital channels and engage customers based on their needs in real time.
Using data analytics, the banks attempted to understand customer-specific needs and respond quickly and appropriately with the relevant product, such as a mortgage, a car loan or a credit card. Operationally, the banks integrated their marketing, technology product development and other teams to work collaboratively.
Regional banks generally have attempted to emphasize retail experience. Russia’s Sberbank, for example, transformed a Soviet-era institution into a more consumer-focused brand. Banks in Saudi Arabia and Dubai, typically focused on corporate investment, are now expanding into retail banking with approaches that are compliant with Islamic laws governing financing and interest.