The McKinsey Global Banking Annual Review 2025 offers a comprehensive analysis of the industry’s trajectory as banks emerge from pandemic-era volatility. While recent profitability has improved, McKinsey emphasizes that banks must address structural challenges to sustain value creation and remain competitive in a rapidly evolving landscape.
1. Resilient Recovery Amid Global Turbulence
McKinsey projects that global banking return on equity (ROE) will stabilize between 7 % and 12 % by 2025, reflecting a cautious yet steady recovery (McKinsey & Company). This range aligns with the post-2010 period, though average ROE remains below what investors expect, given alternative higher-growth opportunities.
Three macroeconomic forces will shape this trajectory:
- Fluctuating interest rates and inflation
- Varying levels of government support
- Differing liquidity conditions
These factors will dictate whether banks operate in the lower or upper end of the ROE range (McKinsey & Company).
2. A Widening Performance Gap
The post-pandemic era is highlighting a critical divergence: top-tier banks continue to pull away from the rest. Performance gaps, often driven by the first two years of recovery, echo trends seen after the 2008 crisis (McKinsey & Company).
McKinsey finds that 14 % of banks now generate 80 % of the industry’s economic profit, compared to just 11 % in 2013 (McKinsey & Company). In the U.S., the top decile of banks outperformed the bottom by approximately 14 percentage points in total shareholder return between 2013–2023 (McKinsey & Company).
3. Strategic Drivers of High Performance
High-performing banks distinguish themselves by focusing on:
- Revenue growth (~34 %)
- Net interest margin optimization (~34 %)
- Fee-based income expansion (~16 %)
- Cost efficiencies (~5 %) (McKinsey & Company)
These banks often operate in favorable markets—e.g., Australia, Canada, India—and exhibit strong fundamentals like credit demand and demographic tailwinds (McKinsey & Company).
4. The Profitability Paradox
Despite strong earnings—ROTE around 11.7 % in retail banking and global banking revenue near $7 trillion in 2024—valuation remains subdued. A price-to-book ratio of ~0.9 suggests the market remains skeptical of long-term sustainability (NEXT Campus).
Key concerns include:
- Overreliance on rising interest rates
- High compliance and cybersecurity costs
- Sluggish productivity gains and intensifying regulation (Niambi Business Strategies, NEXT Campus)
5. Disruption by Nonbank Players
Banks face fierce headwinds from fintechs, embedded finance, and digital-first competitors. Non-bank entities now account for a significant and growing share of payments, lending, and advisory — often without banking’s legacy cost structure (GFM Review).
McKinsey highlights the dramatic shift toward off-balance-sheet growth, with 75 % of incremental U.S. financial assets residing outside traditional banks (Altoo AG).
6. Pathways to “Escape Velocity”
To avoid stagnation, McKinsey outlines five key strategic priorities:
- Leverage advanced tech & AI to boost productivity
- Unbundle or flex balance sheets through syndication and BaaS
- Scale transaction businesses or exit unviable segments
- Enhance distribution via digital, embedded, and hybrid models
- Form non-bank partnerships to access new customer flows (Altoo AG)
7. Outlook: Adapt or Fade
In summary, McKinsey believes the future belongs to banks that:
- Diversify beyond traditional interest income
- Digitally transform customer and internal platforms
- Partner intelligently with fintechs instead of competing head-on
- Streamline operations for flexibility and scale (GFM Review)
Those that fail to adapt risk slipping into irrelevance—even amid high earnings.
🔍 Final Takeaways
- Profitability is stable but undervalued; ROE is good, but valuations remain cautious.
- Performance gaps are growing—leading banks must double down on the digital transformation.
- Tech integration and fintech partnerships are no longer optional—they’re central to future growth.
- Strategic balance-sheet agility and diversified revenue will be key to long-term success.
The 2025 Global Banking Annual Review serves as a timely wake-up call: banks must evolve—or else face diminishing returns in a rapidly transforming financial world.
If you’d like, I can provide visual summaries of key charts, or drill down into how regional banks (e.g., GCC or Europe) stack up. Just say the word!
