In 2024, the global banking sector records a surplus of USD 1.6 trillion, marking a significant milestone in the post-pandemic economic recovery. Capmad looks at the key figures, the factors that contributed to this growth, and the implications for the global economy.
Banking Sector: Remarkable Growth
To put this figure into perspective, it is essential to compare it to previous years. In 2023, bank surpluses stood at around 1.2 trillion USD, which represents an increase of almost 33% in one year. This rapid growth can be attributed to several factors, including:
- Rising interest rates
- Increasing lending
- More efficient cost management
Factors Contributing to the Surplus
- Rising Interest Rates: In response to persistent inflation, central banks around the world have been increasing interest rates. This has allowed banks to generate higher interest income on loans issued. For example, in the United States, the Federal Reserve raised its policy rate to 5.25% in 2024, which has had a direct impact on banks’ profit margins.
- Rising Lending: Demand for loans has also increased, particularly in the real estate and corporate sectors. According to World Bank data, corporate loans increased by 15% in 2024, while mortgage loans saw a 10% increase. This dynamic has allowed banks to diversify their portfolios and increase their revenues.
- Cost Management: Banks have also implemented cost-cutting strategies. These include digitizing their services and automating processes. This has reduced operational expenses while maintaining quality customer service.
Implications for the Global Economy
The 1.6 trillion USD surplus has significant implications for the global economy. Below are some of the potential implications.
- Increased Investment: With larger liquidity reserves, banks are better positioned to invest in infrastructure projects and sustainability initiatives. This could boost long-term economic growth and create jobs.
- Financial Stability: A strong bank surplus contributes to financial stability. Banks with large reserves are less likely to face liquidity crises, which increases investor and consumer confidence.
- Increased Regulation: This growth in surpluses could also attract the attention of regulators. Authorities may consider imposing stricter regulations to ensure that banks do not take excessive risks with their liquidity.
Monitor interest rates
In 2025, it will be crucial to monitor the evolution of bank surpluses. Forecasts indicate that if interest rates remain high, banks could continue to enjoy healthy profit margins. However, external factors such as fluctuations in financial markets and changes in monetary policy could influence this trend.
In Africa, Kenya is a case in point. To revive economic activity, the Central Bank is asking the country’s banks to reduce their interest rates.
Ensuring long-term stability
The 1.6 trillion USD surplus recorded by banks in 2024 is a positive indicator of the health of the banking sector and the global economy as a whole. While this situation offers opportunities for investment and growth, it also requires increased vigilance from regulators to ensure long-term stability.
The large volume of cash deposited could signal a lack of confidence in the sustainability of the economic recovery. So banks are prioritizing the safety of reserves over engaging in risky investments. Ultimately, how banks manage these surpluses will determine the global economic future.
