BOSTON—February 20, 2024­­—Wholesale banks worldwide are urged by a new Bain analysis to seize on key sources of new growth – especially from climate finance and rapid developments in AI – as they confront an imminent crunch on revenues and margins, ending a multi-year run since 2020 that saw a post-pandemic resurgence in their income and returns.

Bain & Company projections – coupled with the view of a majority of large wholesale bank CEOs in a Bain proprietary survey – show that a 2019-2022 period of outsized revenue growth, with compound annual growth rates (CAGRs) of 8% or more, to run out of steam in the period from now to 2025, according to Bain’s report, Five Themes That Will Fundamentally Change Wholesale Banking.

Bain expects wholesale bank revenue growth rates to 2025 could drop by fully three-quarters from recent levels to a CAGR of just 2%, with the weakest potential projections showing revenues in the sector actually contracting, with a CAGR of minus 2%. 

The crunch on the prospects for wholesale banks’ financial performance comes in the face of higher interest rates, set to remain persistently above the ultra-low levels of prior years – even if central banks reduce current benchmark policy rates ­– and a resulting, adverse shift in financial conditions. Adding to pressures on the wholesale banks’ future financial performance are cost pressures from a critical need for heavy spending on IT investments to upgrade and modernize their technology.

Bain’s proprietary research supports this weak expected outlook for wholesale bank revenues. In-depth interviews with ~30 CEOs and senior executives at large wholesale banks found that a majority (~52%) believe prospects for the industry are currently only “average” and that recessionary headwinds, especially in Europe, are expected to hit banks’ performance.

Some 76% of executives interviewed also believed that their existing technology organization does not deliver value for money for their institution. With wholesale banks facing strong cost pressures from required heavy investments in IT alongside the likelihood of significantly weaker revenue growth, Bain’s new analysis maps out the case for wholesale banking institutions to capitalize on new and emerging sources of income to bolster growth and shore up returns.

“The macro-driven boom times fueled by ultra-cheap money are over. Achieving further growth and sustained outperformance versus competitors will be more difficult in the future – but it is achievable for those wholesale banks which commit sufficient resources and make the essential, smart choices around AI, technology, talent and products that resonate and have impact in climate- and carbon-related markets that will be critical for the future,” said Carsten Baumgartner, partner in Bain & Company’s Financial Services practice.

Leveraging new sources of growth and revenues

In particular, Bain’s study highlights major opportunities from climate-related financing and carbon markets and from leveraging fast-moving advances in generative AI.

Climate finance and carbon markets also represent lucrative sources of new potential revenues for wholesale banks, the report concludes. Bain & Company estimates that climate-related products and services will offer a $1.4 trillion opportunity in annual incremental financing globally in the period to 2030, with $550 billion of this addressable by wholesale banks. This could generate a $37 billion annual revenue poll, four-fifths of which would be set to flow from corporate lending.  In addition, carbon credits represent an additional revenue opportunity.

Generative AI will fundamentally change wholesale banks’ business and operating model, the report finds, with 72% of executives expecting it to transform how their institutions do business. AI use cases cited range from developing insights for corporate clients on topics such as liquidity optimization to optimizing core processes, including automation of key steps in the lending process, to management of regulatory demands. 

Yet the scale of the unrealized opportunity around AI and its uses cases is underlined by only 24% of executives believing their organizations are geared up to unlock AI’s potential. Reasons given vary from a shortage of AI expert talent to setting the right priorities for AI implementation.

In addition to the new sources of growth from AI and climate-related financing, Bain also points to other key opportunities that wholesale banks can harness, including adopting greater use of digital assets, modernization of their core IT systems, and doing more to attract and motivate employees who have different priorities than were seen in the past.

Effectively deploying powerful modern technology in core operations is critical to success, the report finds. It notes that applications such as cloud-native banking platforms and processes, supported by AI, can enable banks to automate complex and sophisticated tasks, reducing cost while providing real-time responses to customers.

At the same time, digital assets offer wholesale banks scope to make still further activities more efficient. Blockchain market infrastructure and the use of tokenization have potential to transform the management of private assets, such as PE funds, private debt and real estate with more liquidity and automated settlements, the analysis finds. Similarly, distributed ledger technology may make it possible for banks to eliminate costs from activities such as repetitive know-your-customer due diligence.

In the talent space, the report finds that shifting employee expectations mean that for wholesale banks to regain ground they will need to overhaul their proposition to their teams and tap hidden pools of talent. Overall, gaining the right future talent is seen as a critical goal by the majority of the interviewed wholesale banking executives, who highlighted an urgent need to elevate this priority to be high on their management agendas, reflecting pressure to secure results in this area to ensure enhanced future performance.

Media contacts 

To arrange an interview or for any questions, please contact: 

Gary Duncan (London) — Email: gary.duncan@bain.com

Katie Ware (New York) — Email: katie.ware@bain.com

Ann Lee (Singapore) — Email: ann.lee@bain.com