By Rajul Sood, Managing Director and Global Head of Banking, Acuity Knowledge Partners
As we step into 2025, the banking industry is faced with a number of changes, shaped by a convergence of modest economic growth, new monetary policies, and intricate geopolitical risks. While these elements pose challenges, they also offer unprecedented opportunities for innovation, resilience, and transformation.
There are key themes and trends expected to define the year. In a low-interest-rate environment, sectors such as investment banking, capital markets, lending, and research are poised for growth. This financial backdrop creates fertile ground for expanding opportunities, particularly as institutions strive to capitalize on favorable conditions.
The industry is expected to navigate a dynamic yet opportune environment. Interest rates are anticipated to fall further in a low-inflation setting, prompting banks to capitalize on global monetary easing. This will likely involve a focus on portfolio growth and increasing deal flow while keeping a watchful eye on geopolitical developments.
A focus on investment banking, advisory, and trading will emerge as high funding costs pressure interest margins. To maximize revenues, banks will lean into fee-based verticals. A low-interest-rate scenario is expected to stimulate M&A activity, fundraising, and trading volumes.
The role of technology in this transformation is massive. Artificial intelligence is now reshaping the banking landscape. Generative AI (GenAI) and Agentic AI are becoming essential to innovation, offering transformative impacts across digital lending, advisory, and research. Agentic AI, in particular, has the potential to revolutionize the industry with its autonomous capabilities. However, the integration of these technologies comes with heightened regulatory scrutiny. Increased lending and AI-related advances will drive greater demand for compliance. Navigating the Basel III endgame—amid uncertainty during Donald Trump’s second presidential term—will further test the industry’s adaptability.
Environmental, social, and governance (ESG) considerations have been steadily growing, pushing banks to rethink their approaches to sustainability and social impact. ESG factors are set to play a more prominent role in investment decisions, with demand for green bonds expected to outpace that for social and sustainability bonds.
The evolving relationship between banking and private credit is another area of focus. As private credit continues its rapid ascent, banks are formulating strategies to participate in this growth story, fostering competition and collaboration.
Advances in technology will continue to revamp digital lending processes, enabling a smaller operational footprint, enhanced customer experience, and faster, more accurate credit decisions. This ongoing transformation highlights the importance of operational efficiency and strategic partnerships. Financial institutions worldwide are increasingly leveraging outsourcing to enhance operational efficiencies and improve margins. Outsourcing firms have evolved from being mere support centers for routine tasks to technology enablers, delivering exceptional talent solutions and driving efficiencies for global banks.
Ultimately, 2025 will serve as a test for the banking industry’s ability to adapt and excel. The challenges are undeniable, but so are the opportunities to innovate and lead.
ENDS
Photo Caption- Rajul Sood, Managing Director and Global Head of Banking, Acuity Knowledge Partners