Research carried out ahead of the quarterly bank earnings season has shown that executives in Scotland were optimistic about overall business growth and profitability in the first three months of this year even though inflation, interest rates and cost pressures continue to weigh.
A survey of senior banking executives in Scotland by KPMG found that almost 90% are confident when it comes to overall business growth in the first quarter, supported by a buoyant outlook on expected profitability (84%).
Three-quarters reported a positive outlook for the UK economy, while 55% cited inflationary pressures as their biggest challenge in the first quarter of 2024. This was followed by interest rates (49%) and cost pressures (31%).
READ MORE: Bank rate setter says he is now ‘more confident’ about UK inflation
Higher interest rates help to support profit margins at commercial banks by widening the gap between what they pay to savers and what they charge borrowers. The UK banking sector is coming off a bumper 2023 which saw earnings peak as borrowing costs soared.
News earlier this week that wage growth is continuing to outstrip the falling rate of inflation has prompted analysts to warn that the Bank of England may delay interest rate cuts that many expected to begin in June.
KPMG head of banking Peter Rothwell said the sector may have reached a short-term profitability peak and although earnings are expected to remain broadly healthy in 2024, they are forecast to be lower than last year.
READ MORE: Interest rate cut hopes pushed back after slower-than-expected inflation fall
“While any delays to rate cuts should provide some support to net interest income, the weak UK economy will likely hinder growth," Mr Rothwell said. "Results could reflect how higher rates and the continued cost of living challenges are impacting credit quality, which has proven resilient thus far.
"Given the challenging environment, we can expect a continued focus on costs throughout 2024, while recent consolidation in the sector could continue.
“It will also be interesting to see the extent to which earnings have enjoyed a boost from investment banking and trading operations, in line with the first quarter results of their US counterparts.”
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here