Commercial banks were once a roller coaster. Recent researches however have reported stable evolution of the banking industry to a sustainable level. The future of these banks however doesn’t look so bright with most banks losing market share to other intermediaries and providers of transaction services. This might not necessarily be translated as bad news as it can consequently mean that there is relocation of resources towards more efficient use. The role of banks as providers of financial services in the future remains disputable without any notable significant changes in regulations. With the heavy regulations that surrounds banks, there is need to assess whether the policies made are speeding up the changes in the sector or simply interfering with the organization of the banking industry in terms of size and structure. The changes made to the banking industry should be notable as they directly or indirectly affect the ability of the Federal Reserve to implement monetary policies; these policies are made predominantly by altering commercial banks reserve balance (Ali & Tomoe, 2014).
A concentrated banking system poses danger to the competitiveness in the developing economies, which is a trait absent in advanced and emerging economies. In less-developed banking systems for example, the contest mentality and the need to develop the institution at hand tends to enhance competition while in progressive banking systems, the contest between industries as well as financial liberty tend to be more beneficial. Via a study conducted in Nigeria on the relationship between these inter- industry and within the industry contests and efficiency, there is a constructive and substantial relationship between the degree at which these contests occur and the standards of competence in commercial banks. The reforms made in the country had a positive impact in the raising the level of competition, consequently an improved level of efficiency in their commercial banks (Ajisafe & Akinio, 2012). Basing the argument from the adverse effects of the global financial crisis of 2007, intense bank competition leads to financial innovation but may as well have gross effects on financial stability. Coupled with strong competition, financial innovation such as securitization resulted to a high degree of bank risks leading to the crisis.
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Consolidation of banks has led to an increase in distress and unethical practices as illustrated by Aljisafe and Akinio (2012). Focusing on the consolidation of Nigerian banks by the Central Bank of Nigeria for example, the need for a strong, reliable and viable banking system has been underscored. This has equally led to change in banks mode or operations as well as their contribution to the economy. This research elucidated on the interconnection between banks’ capital and their deposit mobilization, asset base and profitability. It is a conclusion therefore that the capital base of commercial banks plays crucial roles in the determination of the profits made by a bank. Research reports that the consolidation of banks has led to a transformation in the market buildup of the banking sector, created opportunity for financial institutions and market participants and raised their intermediation potential. It is notable to say that consolidation of banks generally has a constructive impact on the financial presentation of banks and the economy as a whole. For such a policy or strategy to be effective however, banks recapitalization should become a continuous exercise as a way of catching up with inflation and other changes in the banking industry.
Globalization of banks is termed as a crucial portrayal of financial services freedom; this is supported by the cumulative number of overseas banks in a given state. This generally leads to a reduced range or profits as well as cost inefficiency. The result is usually an increase in competitiveness and informational asymmetries in the host’s market, the adaptation of an improved technology and administrative practices by local banks (Amit, 2016). Examining the outcomes on the basis of economic development levels and difference in overseas bank existence, profits are rarely affected positively by globalization. However, there is an exception in only unindustrialized markets and in nations where 50% of the banks present are foreign. This therefore makes it a mandatory measure for banking regulatory authorities to implement policies that aims at reducing informational asymmetries in host markets. Since the global financial crisis that was witnessed in the banking industry during the 2007 global financial crisis, the potential benefits and disadvantages of globalization of banking were witnessed in depth. This therefore calls for all stake holders, including policy makers, researchers and other financial to make long-standing policies that will protect the interests and stands of domestic banks.
With digitalization affecting everything, the future of commercial banks remains uncertain especially with the transformative impacts. Innovation and disruption will play an equivalent mega role; this is because they not only transform how established commercial banks need to service their clients they as well advance what the clients come to expect. The future of banks should focus on leveraging innovative technology and new business models that will establish an interactive platform. Ways of combating disruption and exploiting opportunities should be conventional as a way of providing better services to clients. Since change is unavoidable, regulations and new entrains disrupting the commercial banking sector should be evaluated and the roles they play in the improvisation of the general banking sector assessed. How banks respond to customer engagement, growth and efficiency, regulations and competition are inextricably linked. As much as the application of technology for operational enhancement has been improved, commercial banks should work on the optimization of commercial lending process and the on-boarding of commercial clients as a way to secure their position in the future.
References
Ajisafe, R. A. &Akinoi, A. E. (2012). Competition and Efficiency of Commercial Banks: Empirical Evidence from Nigeria. American Journal of Economics , 4(1), 18-22.
Ali, Mirzael. & Tomoe, Moore. (2014). What are the banking competitions across different income groups of countries? Journal of International Financial Markets, Institutions and Money , 32, 38-71.
Amit, Ghosh. (2016). Banking sector globalization and bank performance: A comparative analysis of low income countries with emerging markets and advanced economies. Review of Development Finance , 6(1), 58-70.
