Profitability continuing to improve at financial services firms – survey

GROWTH in business volumes at financial services firms picked up more strongly than expected in the three months to December 2015.

And profitability continued to improve at a healthy pace, according to the latest CBI/PwC Financial Services Survey.

The survey of 100 financial services firms reported that the overall level of business remained “above normal”, despite the fact that the level of business with overseas customers fell below normal to the greatest extent for three years.

The quarterly survey also found that optimism within financial services rose only slightly, following more robust increases in the first half of 2015. Strong competition is bearing down on incomes, though tight cost control is helping to support growth in profitability.

Looking ahead, weaker growth in business volumes, flat income and rising costs are expected cause growth in profits to ease in the run up to March.

Meanwhile, employment prospects remain mixed, with banks reporting falling employment, compared with solid growth in headcount in the insurance and building society sectors. Overall, expenditure on training rose strongly in the three months to December.

David Roper, partner and financial services leader at PwC in the Midlands, said: “We see the emerging trend of firms making more investment in new products. Another positive is that IT investment is moving from regulatory spend to front line systems to help overcome the rise of new competition.

“Also, it’s clear that optimism is muted across the whole sector and each sub-sector has its own challenges. On-going low interest rates, cost of floods claims, the continuing slump in oil prices and the domino effect of stock market volatility are responsible for the increased pessimism compared to this time last year.”