Profits up in financial services sector
ACTIVITY in the UK financial service sector was broadly stable over the past three months with firms now hoping to see much better growth in the near future, according to the latest CBI / PwC Financial Services Survey.
The profitability of financial services businesses improved for the third quarter running, and is expected to increase further in the coming three months, the research found.
Concern about legislative burden is at an all time high in the industry, however, with spending on compliance expected to rise sharply over the next 12 months.
Asked how their business volumes fared in the three months to March, 43% said that volumes rose and 42% said they fell. The resulting balance of +1% is better than the expected -13%.
Over the next three months, a balance of 48% of firms expects a rise in business volumes, which is the most positive expectation since March 2006 (+58%).
While banks and security traders saw business volumes fall in the past three months, both sub-sectors now expect volumes to increase in the coming quarter. Building societies and life insurers experienced unexpectedly strong growth, the survey found.
Across the different customer groups, business with private individuals grew, while lending to industrial and commercial companies continued to fall (-9%). Volumes of business with overseas customers rose at the fastest pace (+14%) since September 2007 (+17%), and a record expectation was recorded for the coming three months (+27%).
Against expectations, the value of fee, commission and premium income rose, while the value of net interest, investment and trading income also rose.
Mark Hannam, partner and Yorkshire & Humberside financial services leader at PricewaterhouseCoopers, said: “Banks’ confidence is continuing to rise amid predictions that business volumes will show the sharpest increase for three years.
“Commercial business has been weak during the quarter, but for the first time in two years activity is now expected to pick up and demand from financial and overseas customers is also predicted to be an area of growth. However, retail activity remains an area of concern as growth predictions remain hesitant.
“Staffing levels are also expected to continue to be an area of constraint, with further reductions predicted for the coming quarter.
“On a positive note, profitability has remained steady and further improvement is expected, driven by the continued improvement in margins for new business as well as fewer concerns about future unexpected loan losses.
“While banks recognise the need for further capital, they do not see that their ability to raise capital is a significant constraint on their business, although concerns around systems capacity are starting to re-emerge as a theme.
“Building societies’ recent welcome uptick in activity has done little to raise the confidence about the sector’s long term prospects. Levels of business have increased, house purchase activity has picked up and retail demand has improved.”
