NEEDHAM, Mass. (11/20/08)--The continuing uncertainty in the global economy and financial markets will force consumer financial institutions to sharpen their focus on conserving capital and competing for deposits in the coming year, says TowerGroup. Credit liquidity will be a pervasive issue for financial institutions across all geographies, and economic growth in every region will be severely impacted, said new research from the Needham, Mass.-based firm. TowerGroup predicts that developed markets in North America and Europe will suffer more than the emerging markets in Latin America, Africa and Asia. In 2009, capital conservation will become critically important for financial institutions, said the firm. With credit likely to be tight throughout the year, financial institutions must determine how to lend funds to consumers profitably and allocate capital adequately given the global curtailment of securitization. To improve risk management protocols and address lending operations' efficiency issues, financial institutions likely will implement improved analytics, business intelligence and performance-management solutions, said TowerGroup. "The interdependencies among financial institutions will impact consumer banks in every region of the world as capital adequacy and liquidity concerns continue to permeate the global financial system," said Kathleen Khirallah, managing director and practice leader of banking research and advisory service at TowerGroup. "With the strongest of banks under pressure to maintain earnings, growth will stagnate, banking consolidation will increase and discretionary information technology (IT) spending will decline," she said adding that institutions "will be forced to do more with less." The research's key points include:
* The pace of banking consolidation will accelerate throughout the first half of 2009, as distressed banks seek to be acquired and regulators close banks they consider too weak to survive. * For most retail banks, the most pressing outcome of the reduction in economic growth will be the necessity to reduce discretionary spending. Aside from pressure to cut personnel costs, consumer bankers will face significant reduction of their discretionary IT budgets in 2009. * The current environment will cause banks to divert IT resources from other projects to support loss mitigation. To curtail losses, consumer banks will upgrade collection and foreclosure software and use analytical software to detect potential problems in loans before they enter delinquency status.