Banking in 2050 by PwC

www.pwc.co.uk/financialservices

Banking in 2050

How the financial crisis
has affected the long term
outlook for the global
banking industry.

May 2011

Contents
1. Executive Summary 3
2. Approach 6
3. How large will the emerging
economies become? 8
4. Domestic banking assets – 12
historic trends
5. Projections of banking assets and 15
profits to 2050
6. Conclusion and key questions 23
Annex: Methodology and data 25

1. Executive
Summary

The accelerating shift in industry. In this report we present
updated projections on how large we
economic power from the
expect the banking industry to become
developed to emerging in the world’s largest economies over
economies is dramatically the next 40 years, building on our
changing the banking 2007 report on this same topic that
was produced prior to the onset of the
industry across the world. financial crisis,1 and our updated GDP
projections published earlier this year.2
Leaders of financial institutions need
Our key findings are that:
to take advantage of the growth
opportunities this change is creating. • The emerging economies’ banking
This report provides projections of the sectors are expected to outgrow those
long-term trends of the banking sector in the developed economies by an
based on the underlying macro-economic even greater margin than we projected
trends, from now until 2050 for the before the financial crisis.
world’s leading economies.
• By 2050 the leading ‘E7’ emerging
PwC* have prepared this report to help economies could have domestic
organisations develop their long-term banking assets and profits that exceed
strategy and plans. Our analysis quantifies those in the G7 by around 50%.
the projected size and growth of the
• China could overtake the US in terms
banking sectors for different economies.
of the size of their domestic banking
We identify the projected timing of
sectors by around 2023.
the key transitions when the emerging
economies become leading players. And • India has particularly strong long-term
* “PwC” refers to the network of member firms of crucially, we demonstrate these changes growth potential and our projections
PricewaterhouseCoopers International Limited (PwCIL), have accelerated since the period prior to suggest it could become the third
or, as the context requires, individual member firms of
the PwC network. the global financial crisis, placing greater largest domestic banking sector by
1 “Banking in 2050: How big will the emerging markets demands on industry leaders to respond 2050 after China and the US, but
get?”, June 2007, http://www.pwc.com/gx/en/ effectively to these opportunities. ahead of Japan, the UK and Germany.
world-2050/banking-sector.jhtml
Brazil could also rise strongly up
2 “The World in 2050, The accelerating shift of global The recent global financial crisis shook
the global banking league table
economic power: challenges and opportunities”, the world economy and set in motion
January 2011, http://www.pwc.com/gx/en/world-2050/ over this period.
the-accelerating-shift-of-global-economic-power.jhtml significant changes to the banking

Banking in 2050, May 2011 3

Our long-term projections for the E7 and
Figure 1: Projections of domestic banking assets in the E7 and G7 G7 domestic banking assets are displayed
in Figure 1. Over the projection period we
expect the E7’s domestic banking assets
350,000 grow at a faster rate than those of the G7
resulting in the E7 overtaking the
G7 around 2036.
Domestic credit ($bn 2009 prices)

300,000

Table 1 presents the years in which
250,000
we project the emerging economies to
overtake the developed economies. We
200,000
compare these projections with those
150,000
from our 2007 analysis, and broadly
we find that the emerging economies
100,000 overtake the developed economies
earlier than in our original projections.
50,000 This suggests that the financial crisis has
brought about an acceleration in the shift
0 in economic power from the developed to
2009 2014 2019 2024 2029 2034 2039 2044 2049 the emerging economies.

n G7 n E7 n World

Source: PwC analysis, IMF

Table 1: Dates at which E7 economies overtake G7 in terms of the
size of their domestic banking assets
Overtaking year Overtaking year
Country pairs
(2011 analysis) (2007 analysis)

E7 overtakes G7 2036 2046
China overtakes US 2023 2043
India overtakes Japan 2033 2041
Brazil overtakes UK 2045 -
Russia overtakes Italy 2039 2047
Mexico overtakes Italy 2048 2038
Turkey overtakes Canada 2045 -

Source: PwC model projections (where no date is shown this indicates overtaking dates beyond 2050)

4 Banking in 2050, May 2011

What questions does •
How will new regulatory capital and
other requirements impact these
this analysis raise? growth trends globally and within
The analysis in this report can help geographies where implementation
banks, other financial corporations and may be more or less restrictive? How
policy-makers to identify the key long- will the use of securitisations impact
term macroeconomic trends likely to these growth trends?
affect banking over the next 40 years. • he pace of prospective growth in
T
This should help to stimulate strategic global banking assets is likely to
discussions and identify key opportunities exceed the sector’s capital generation
and threats relating to the emerging from retained earnings raising the
markets in particular. question: where will the capital to
Particular questions your organisation support the growth in banking assets
may want to consider are: come from?
•
Which economies have the greatest • o what extent will non-bank
T
future potential for growth and investors such as funds and insurance
investment? What are the areas of companies be able to access the
greatest competitive advantage for our lending markets across the world
organisation? directly (as lenders) or indirectly
(through securitisations)?
•
What growth strategies are open
to our business to compete in this • ill the asset growth in Asian banks
W
shifting global landscape? create a new cadre of international
Will competition become more banks that will come to dominate
intense? Is greater consolidation the global markets and feature
an effective strategy? How should prominently in banking M&A? What
opportunities be valued given these threat could this pose to the current
growth expectations? leading banks and could this lead to a
defensively inspired phase of banking
• hat types of banks will we see
W consolidation?
developing in the emerging economies
(e.g. universal high street banks or
more specialised or localised players)
and how will they integrate with and
shape the future evolution of the
global financial system (e.g. as regards
dominant currencies)?


2. Approach

Overview
In this section we present an overview of our methodology. We follow broadly the
same approach that we used in our 2007 analysis, as summarised in Figure 2. Starting
from GDP projections (as reported in the latest update of our “World in 2050” report
in January 20113), we then developed projections for the amount of domestic banking
assets in each economy. We investigated banking profits by applying a country specific
net interest margin to the domestic assets. The technical details of this approach are
given in the Annex.

Figure 2: Global banking projections model structure

GDP GDP & GDP/Capita
model assumptions projections from PwC
model to 2050

Banking
assets to GDP ratio Banking assets Regression
trend analysis (charts) projections analysis

Return
on assets trend Banking profit Expert
analysis projections judgement

Note: all projections done by country then aggregated to global level

Source: PwC model

3 “The World in 2050, the accelerating shift of global economic power: challenges and opportunities”, January 2011,
http://www.pwc.com/gx/en/world-2050/the-accelerating-shift-of-global-economic-power.jhtml
4 Note that these five countries were not included in our 2007 ‘Banking in 2050’ report, but are included here as they
have long-term potential and were included in the latest update of our ‘World in 2050’ GDP projections.
6 Banking in 2050, May 2011 5 We concentrate on domestic lending only as this allows for the greatest consistency in data between countries.

We included the following 22 countries We also combined these GDP projections In our 2007 report we used return on
in the analysis on the basis that, based on with UN population projections to assets (RoA) as our measure of banking
earlier model projections, we expect them determine GDP per capita trends. profitability. However, we decided not to
to have the largest economies in the world From previous research, we know this use this measure in this updated analysis
by 2050: per capita income measure is a useful because it has become much more volatile
indicator of the state of development over the course of the financial crisis
G7 countries: US, Japan, Germany,
of each economy, which is a key driver and so less reliable as a starting point
UK, France, Italy, Canada
of the size of an economy’s banking for a long-term profitability analysis.
E7 countries: China, India, Brazil, sector as a share of GDP. NIM rates have been less volatile and are
Russia, Mexico, Indonesia, Turkey more closely related to the domestic asset
Domestic banking asset projections base used in this study as the measure of
Other developed economies:
banking size in each country.
Australia, Republic of Korea, Spain Our baseline projections were derived by
Newly emerging economies: assuming an underlying upward trend
in the domestic5 credit to GDP ratio in Key assumptions and uncertainties
Argentina, Vietnam, Nigeria, Saudi
Arabia, South Africa4 line with historic trends for the countries Our analysis rests on the following broad
concerned (using IMF data). We also assumptions:
allow for gradual convergence to the
GDP projections norm for countries with relatively high or
1. Governments follow broadly growth-
friendly policies across the period
We began by taking our updated low initial banking to GDP ratios relative
for the projections (e.g. maintain
long-term GDP projections as the basis to their state of economic development.
reasonable macroeconomic stability,
for our projections for domestic credit. This convergence occurs at a relatively
remain open to trade and investment,
As explained further in the Annex, these slow rate of around 2-4.5% per annum,
maintain a reasonable rule of law etc.)
projections incorporate the effects of: depending on the country concerned
(as explained further in the Annex). 2. There are no catastrophic events that
• the expected growth of the working
permanently throw growth off track
age population (as projected by Having generated these projections for
(e.g. nuclear war, major global climate
the UN); the ratio of domestic credit to GDP, we
disasters) – as opposed to temporary
then obtained the absolute amount of
• projected growth of human capital cyclical fluctuations that we ignore
domestic credit by applying these ratios
(proxied by education levels) and as we are focusing here on long-term
to our GDP projections at market
physical capital (driven by assumed potential growth.
exchange rates.
investment to GDP ratios after
These assumptions are, of course,
allowing for depreciation of the
Banking profitability subject to many uncertainties over the
existing capital stock); and
projection period. Our results should
• total factor productivity growth We investigated the projected profitability therefore be taken as indications of the
(global technological progress and for the banking sector by determining potential future scale of domestic banking
lower income countries catching up the profits from the net interest margin assets and profits conditional on these
with richer ones by making use of (NIM) on domestic banking assets for assumptions, rather than being forecasts
their technologies and resources). each economy. Our approach was to take to which spurious precision is attached.
data from Fitch on the NIM in different The purpose of the analysis is to point
The projections also allow for real countries, and to project forward these to broad strategic trends in the long run
exchange rate increases over time in values under a convergence scenario not to make detailed predictions that are
the emerging economies linked to their where the NIM in each country tends to bound to be wrong to a greater or lesser
stronger expected productivity growth a common value by 2030 (given by the degree given the uncertainties involved in
(the so-called Balassa-Samuelson effect). global weighted average NIM in 2004-8). any such long-term exercise.
This means that real GDP growth in Applying the projected NIM rates to the
emerging economies is typically higher domestic assets in an economy gives a
when measured in US $ terms than in measure of income from lending activity
domestic currency (or PPP terms). and thus indicates the level of profits.


3. How large will the
emerging economies
become?
Our analysis for banking The global economic
assets rests heavily on the power shift from the G7
trends in GDP and GDP
to the E7 is speeding up
per capita of the countries
“World in 2050: The accelerating shift
studied. In our research in global economic power: challenges
“World in 2050”, we and opportunities” presents our GDP
published our projections projections for the 20 largest economies
of the GDP for the different in the world. We have used the results
from this analysis to determine the size
economies considered in of domestic credit in these economies.
this report. In this section Therefore to understand the results for
we highlight some of the key the banks, it is useful to first understand
the main changes we expect to see in the
findings from this research
size of these economies.
relevant to the results for
Figure 3 shows the GDPs of the E7 and
our banking projections.
G7 in 2009 and our updated projections
for 2050 (measured in constant 2009
US$ at market exchange rates). We see
from the chart that in 2009, the GDP of
the E7 is approximately one third the size
of the G7, but by 2050 the E7 could grow
to be more than 60% larger than the G7.
Our analysis also suggests that the E7
could overtake the G7 in terms of GDP at
market exchange rates in around 2032 (at
PPPs this could occur by 2020, but this is
less relevant for the present report).


Figure 3: GDP projections for the G7 and the E7 to 2050

120,000

100,000
GDP ($ bn 2009 prices)

80,000

60,000

40,000

20,000

0
2009 2050

n G7 n E7

Source: IMF for 2009, PwC model projections for 2050

We expect China could overtake the US allowing also for potential real exchange
by around 2030 based on GDP measured rate increases. This makes it one of the
by market exchanges rates (it could be most rapidly growing economies over this
before 2020 based on PPPs). However, time period. However, to sustain these
we expect China’s rate of growth to slow high growth rates India must continue
down over time due to its rapidly ageing to pursue growth-friendly policies (e.g.
population as a result of its single child invest in infrastructure, open up its
policy and as its growth needs to become markets to increased competition, reduce
increasingly based on its own innovations budget deficits, increase rural education
rather than just replicating the levels particularly for women and reduce
innovations of the developed economies. bureaucracy).
India’s rate of growth by contrast is Table 2 shows how the projected average
expected to overtake that of China’s in the growth rate for GDP measured in constant
long run as it has more catch-up potential 2009 US $ at market exchange rates can
and its working age population growth be broken down into three components:
will be much stronger in the long-term. population growth, real GDP per capita
India’s share of global GDP in $ terms growth and a real exchange rate change.
could therefore increase from only 2%
in 2009 to around 13% in 2050 after


Table 2 Components of projected potential GDP growth (% pa average, 2010-50)

Country Contribution Contribution Real GDP growth Changes in real Real GDP
from population from real GDP in domestic market exchange growth in US
growth (%) per capita currency rates (%) $ terms (%)
growth (%) terms (%)*

(A) (B) (C = A + B) (D) (E = C + D)
Vietnam 0.7 6.1 6.8 1.9 8.7
India 0.8 5.3 6.1 1.9 8.0
Nigeria 1.5 5.0 6.5 1.3 7.8
China 0.1 4.6 4.7 1.1 5.8
Indonesia 0.6 4.1 4.7 1.1 5.8
Turkey 0.6 3.4 4.0 1.0 5.0
South Africa 0.3 3.6 3.9 1.1 5.0
Saudi Arabia 1.4 2.7 4.1 0.9 5.0
Argentina 0.6 3.0 3.6 1.2 4.8
Mexico 0.5 3.2 3.7 1.1 4.8
Brazil 0.6 3.3 3.9 0.5 4.4
Russia -0.7 3.2 2.5 1.4 3.9
Republic of Korea -0.3 2.6 2.3 0.9 3.2
Australia 0.7 1.9 2.6 -0.2 2.4
US 0.6 1.8 2.4 0.0 2.4
UK 0.3 2.0 2.3 0.1 2.4
Canada 0.6 1.7 2.3 -0.1 2.2
Spain 0.1 1.8 1.9 0.1 2.0
France 0.2 2.0 2.2 -0.5 1.7
Italy -0.2 1.9 1.7 -0.2 1.5
Germany -0.3 1.9 1.6 -0.3 1.3
Japan -0.5 2.1 1.6 -0.5 1.1

Source: PwC long-term GDP growth model projections (World in 2050 report, January 2011)


There are several important points to note 3. The emerging economies’ market
from these GDP projections: exchange rates are expected to
appreciate over time in real terms
1. There is a natural segmentation
due to relative stronger productivity
of the countries into two groups:
growth (the so-called Balassa-
emerging economies (E7 and the
Samuelson effect). This provides a
newly emerging economies) with high
boost to growth in all of the emerging
expected rates of growth (typically
economies when measured in
4% or more per annum including real
real US$ terms. Note that this real
exchange rate appreciation) and the
exchange rate appreciation could arise
developed economies (G7) with much
due to nominal appreciation and/or
lower rates of growth (typically less
higher inflation rates in the countries
than 2.5% per annum including real
concerned.6
exchange rate changes). South Korea
is an intermediate case here between Of course, as noted in the previous
the E7 and G7. We will see a similar section, the precise growth projections
E7-G7 growth differential when we shown in Table 1 are subject to many
consider the expected growth rates of uncertainties and should be taken as
domestic banking assets in Figures 4 indicators of economic potential rather
and 5 on P13. than precise forecasts. However, the
broad messages discussed above on
2. Projected changes in population have
relative growth rates of emerging and
an important effect on some countries’
developed economies seem likely to be
relative growth rates. For instance,
more robust.
Russia, Japan and Republic of Korea
are expected to experience population
falls, depressing overall GDP growth.
Nigeria, Saudi Arabia and India are
all expected to experience strong
population increases, thereby boosting
overall GDP growth. Some advanced
economies (e.g. US, Australia) are
projected to have stronger population
growth than some emerging
economies (notably China due to its
one child policy).

6 To illustrate this effect consider the problem of valuing a house located in the Euro zone in US$. Suppose its initial
value is €100,000, and the market exchange rate is 1€/$. Then the value of the house in dollars is $100,000. Over
time the value of the house will change as measured in local currency, reflecting local market conditions, the
economy etc. Measured in US$ however, there could also be a corresponding change in value due to changes in the
real exchange rate. If the euro appreciates against the dollar in real terms, it will be worth relatively more in dollar
terms. So in our example, suppose that after one year there is an increase in the value of the house of 5% in the local
market, and an appreciation of the euro against the dollar resulting in an exchange rate of 0.95 €/$. The value of the
house at the end of the year is therefore €105,000 or $110,526. Here we can see that there is a higher rate of growth
in the dollar value of the house, arising from the appreciating exchange rate, in addition to the increase in value due
to local market conditions. The situation for international comparisons of GDP is analogous to this. Banking in 2050, May 2011 11

4. Domestic banking
assets – historic
trends
In this section we review how domestic banking assets
in the countries of our study have varied over time.
This is useful as it offers insights of important differences
between countries and how they are likely to evolve.

Country trends run, and therefore we project this
ratio to fall over the coming decades
to one that is more in line with other
Developed economies developed economies.
Figure 4 shows historical trends in the
• The US has a relatively low ratio of
ratio of domestic banking assets to GDP
banking assets to GDP based on the
for the major developed economies. The
IMF domestic credit definition used
general trend is that of a gradual upward
here in comparison with most other
trend in the ratio over time from around
developed economies. This is likely
50-100% of GDP in 1986 to around
to be due to the fact that in the US a
100-230% of GDP in 2009. However,
much greater proportion of financing
there are considerable variations in these
takes place through securities markets
trends across countries. We can note in
rather than through bank lending.8
particular that:
So whilst there are high levels of
• The banking assets to GDP ratio leverage in the US economy as a
for the UK and Spain has increased whole, a large proportion of this
particularly strongly over the past 7 debt will be held by non-bank
7 For the UK, we looked at this issue of excessive public
and private sector debt levels in detail in an article
years, resulting in ratios of over 200% organisations, and therefore do not
in our November 2010 UK Economic Outlook report, of GDP. This is the result of property feature in this analysis based on the
http://www.pwcwebcast.co.uk/ukeo_nov2010_debt.pdf booms in these countries as well as the IMF definitions used for this study.
8 The average value of outstanding US securitised debt
in 2009 has been variously estimated at between $3.6 role of leveraged private equity deals
trillion and $5 trillion, or around 25-35% of US GDP. and general expansion of the financial
However, whether it is appropriate to consider this as
part of the assets of the banking sector, and whether sector’s role in these highly leveraged
there may be double counting if we just add this into economies. We consider it most likely
our measure of domestic credit, is less clear. For the
purposes of this study, therefore, we note this point
that this high level of credit relative
but do not try to add in securitisation assets for the to GDP is unsustainable7 in the long
US or other countries.


• South Korea is an interesting example
Figure 4: Ratio of domestic banking assets to GDP in of a country that has changed from
developed economies being an emerging economy into
a developed economy over the last
30-40 years. Between 1988 and 2000
250.00 Republic of Korea had the lowest
ratio of banking assets to GDP of the
Domestic banking assets as % of GDP

developed economies considered in
200.00 this study, but this ratio has since risen
to a level more in line with the other
developed economies. This mirrors
150.00 the broad trends we expect in the
future from other emerging economies
that are currently less far along the
100.00
development track than Republic of
Korea (as discussed in Section 5
50.00 of this report).

E7 Economies
0.00
1986 1991 1996 2001 2006 In Figure 5 we show the trend in the ratio
of domestic banking assets to GDP for
n Australia n Canada n France n Germany n Italy the E7 countries. We can note from this
n Japan n Republic of Korea n UK n USA n Spain chart that:

Source: IMF • China has by far the highest ratio of
the E7 economies. In the past this has
been due primarily to high levels of
lending to state enterprises, although
Figure 5: Ratio of domestic banking assets to GDP in the more recently property-related
E7 economies lending has also grown rapidly in
China and state enterprise lending
180.00 has declined in relative importance
as the Chinese economy becomes

160.00 increasingly driven by private sector
140.00 companies.

120.00 • Some of the other countries display
the effects of past financial and
100.00 economic crises. For instance, Brazil
80.00 has two sharp peaks in its ratio
corresponding to its financial crisis
60.00 and hyperinflations between 1986 and
40.00 1994. More recently, however,
its economy has been much more
20.00 stable and its longer term prospects
0.00 appear strong.
1986 1991 1996 2001 2006

n Brazil n China n India n Indonesia n Mexico n Russia n Turkey

Source: IMF


• From the limited data we have for
Figure 6: Ratio of domestic banking assets to GDP in newly Nigeria, we see a fair degree of
emerging economies volatility that could originate from a
combination of political uncertainty
and its dependence on oil revenues.
140.00 In absolute terms, Nigerian banking
assets remain low relative to GDP

120.00 but have long-term potential if the
government can follow broadly
100.00 growth-friendly policies and diversify
its economy away from oil in the long
80.00 run. Banking sector development
will be an important element in
60.00 this process for Nigeria and other
emerging economies that have
40.00 traditionally been heavily dependent
on revenues from natural resources.
20.00

0.00 Key changes due to the
1986 1991 1996 2001 2006
financial crisis
n Argentina n Saudi Arabia n South Africa n Nigeria n Vietnam We can see varied trends in how
economies’ ratios of domestic banking
Source: IMF ( no available 1994 data for Vietnam)
assets to GDP have fared over the
financial crisis period since 2007. In
most developed economies this ratio
kept on increasing, probably reflecting
• Indonesia and Mexico have both Newly emerging economies a combination of a decrease/slowdown
displayed sustained declining banking in GDP and increased lending to
Figure 6 shows historic trends in banking
asset to GDP ratios from 1999 and governments to finance their fiscal
asset to GDP ratios in the newly emerging
1997 respectively, with Mexico interventions and growing budget
economies. Our analysis of these
stabilising around the middle of the deficits. For the E7 and newly emerging
countries is limited by the availability of
2000s. This is most likely an after economies the ratios also increased, but
data, but we can identify some
effect of the Peso crisis (Mexico) and this largely reflected continued healthy
broad trends:
the Asian crisis (Indonesia), reflecting private sector growth after relatively
a long recovery and rebalancing • Vietnam has shown a strongly short cyclical downturns due to the crisis.
of their economies. This result is increasing ratio since 1998. As in In addition, some countries such as China
important when we come to consider the case of China, this is most likely embarked on significant fiscal stimulus
how developed economies will recover due to the large amount of lending programmes and encouraged higher
from the financial crisis, particularly to state owned enterprises in earlier bank lending to prevent recessions
for those that are highly leveraged periods combined with strong growth from taking hold.
(e.g. UK, Spain). History suggests in property-related lending in more
that it takes a long time for banking recent years.
systems to recover fully from such
• Argentina has seen a declining ratio
major crises.
of banking assets to GDP during its
gradual and painful recovery from its
financial crisis in the early 2000s.


5. Projections of
banking assets and
profits to 2050
Projections of domestic banking assets
Figure 7 shows the key result of this report. It shows the projected trend level of
domestic credit in the G7, E7 and the World over the period to 2050. We project E7
banking assets to grow significantly faster than those in the G7, and to overtake the
G7 around 2036 (compared to around 2044 in our 2007 report on this topic). The
financial crisis therefore does appear to have accelerated this global shift of economic
and financial power to the emerging economies. By 2050 the E7’s banking assets are
projected to be approximately 50% greater than those in the G7.

Figure 7: Projections of domestic banking assets in the E7 and G7

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0
2009 2014 2019 2024 2029 2034 2039 2044 2049

n G7 n E7 n World

Source: PwC analysis, IMF


It’s worth noting that the changes in
Figure 8: Projected ratio of domestic banking assets to GDP relative E7/G7 banking assets are not
exactly the same as the relative change
projected in E7/G7 GDP. The reason
160 for this in our model is that the ratio of
domestic banking assets to GDP also

140
evolves over time in different ways for the
120 E7 and G7, as illustrated in Figure 8. The
average ratio in the G7 remains relatively
100 stable over the projection period. In the
emerging economies the ratio rises fairly
80 quickly initially, but then converges more
slowly on the world average towards the
60
end of the projection period. This is the
40 result of these economies maturing
into developed economies with slower
20 trend growth rates by the end of the
projection period.
0
2009 2014 2019 2024 2029 2034 2039 2044 2049 We also looked at projected changes in
levels of domestic banking assets at a
n G7 average n E7 average n World average country level. In Figure 9 we plot the
changes in domestic assets over the
Source: PwC analysis using IMF base year data for 2009
projection period for the US, China, India
and Japan. The key results here are that
China could overtake the US in 2023, and
India could overtake Japan in 2033. In
our previous analysis published in June
Figure 9: Domestic banking assets for the US, China, India and Japan
2007, China was projected to overtake
the US in 2043, and India to overtake
Japan in 2041. Although the exact
80,000
transition dates are open to considerable
70,000 uncertainty, it seems likely that China will

have the largest domestic banking assets
60,000 in the world at some point within the
next 20-30 years and that India will move
50,000
clearly into third place by 2050.
40,000

30,000

20,000

10,000

0
2009 2014 2019 2024 2029 2034 2039 2044 2049

n US n China n India n Japan



Figure 10 shows the projected trends for
Table 3: Comparison of previous results with updated results: banking assets in Japan, Germany, UK,
overtaking years for E7 vs G7 economies Brazil and Russia. The key point here
is that Brazil’s domestic banking assets
Overtaking year Overtaking year are expected to grow relatively fast over
Country pairs
(2011 analysis) (2007 analysis) the projection period, resulting in it
overtaking both Germany and the UK
E7 overtakes G7 2036 2046
by around 2045. Russia is projected to
China overtakes US 2023 2043 have strong growth, but not fast enough
to overtake the UK, Germany or Japan
India overtakes Japan 2033 2041
within this period.
Brazil overtakes UK 2045 -
In Table 3 we summarise some of the
Russia overtakes Italy 2039 2047 key overtaking dates mentioned above,
and compare them with the results from
Mexico overtakes Italy 2048 2038
our 2007 projections. The main point
Turkey overtakes Canada 2045 - to note is that the analysis suggests that
emerging economies will overtake the
Source: PwC model projections (where no date is shown this indicates overtaking dates beyond 2050) developed economies earlier than we had
anticipated before the financial crisis.
The exception to this trend is transition
for Mexico and Italy; we project that it
is going to take longer for this to take
Figure 10: Domestic banking assets for Japan, UK, Germany, Brazil
place than our 2007 projection had
and Russia
suggested. We expect that this is due to
Mexico’s domestic banking assets not
14,000 having grown as fast as other developing
countries since our last report.
12,000

Projected changes in the shares of the
world’s domestic banking assets are
10,000
shown in Figure 11. Our analysis suggests
8,000
that China and India could have a
combined share of around 35% of global
6,000 banking assets by 2050. Other somewhat
smaller emerging economies such as
4,000 Brazil and Russia will also see their shares
rise significantly. The US, Japan and
2,000 Western Europe are all projected to see
large falls in their share of global banking
0 assets in the coming decades.
2009 2014 2019 2024 2029 2034 2039 2044 2049

n Japan n UK n Germany n Brazil n Russia



We present in declining size order the
Figure 11: Share of total global banking assets current and projected future values in
2030 and 2050 of domestic banking
assets for each of the countries we
Nigeria 1.1% analysed in Table 4. We see that in
0.1%
1.4%
2050 China is projected to have clearly
Vietnam 0.2% the highest banking assets, with India
0.9%
S. Africa 0.4% and Brazil moving up to acquire top 5
Argentina 0.7%
0.1% positions from the UK and Germany.
S. Arabia 1.0% Mexico and Indonesia make large moves
0.4%
1.7%
up the rankings over time, while Australia
Turkey 0.5% and Canada fall back. The newly
1.6%
Indonesia 0.3% emerging economies tend to occupy the
Mexico 0.4%
1.9% lower rankings but with relatively fast
1.3% growth rates over time, particularly for
Republic of Korea 1.4%
1.2%
Vietnam and Nigeria (although these
Australia 1.9% are heavily dependent on continuing to
1.5%
Canada 2.4% pursue broadly growth-friendly policies
Spain
1.6%
4.8%
as discussed in Section 3).
1.8%
Italy 4.8%

France
2.5%
5.0% What factors are
Germany
2.7%
6.5% responsible for the
1.1%
UK
3.4%
7.3% speeding up of change?
Brazil 1.5%
The main reason why the shift of
2.2%
Russia 0.6% global banking power to the emerging
3.8%
Japan 11.0% economies is now projected to be faster
India
12.2% than in our 2007 report is due to the
1.4%
22.9% short and long-term effects of the global
China 8.8%
financial crisis.
14.8%
US 21.7%
• In the short-term, most developed
0.0 5.0 10.0 15.0 20.0 25.0 economies experienced a significant
economic slowdown or recession in
n 2050 share n 2009 share 2008-9, reducing significantly the
growth of domestic banking assets.
Source: IMF data for 2009, PwC model projections for 2050
• Emerging economies by contrast
tended to maintain relatively
high growth rates, although some
temporary economic slowdown was
experienced in certain cases. In 2010,
however, emerging economies grew
strongly in general, while the recovery
in Europe in particular remained
relatively weak.


Table 4 Global leader board of domestic banking assets in 2009, 2030 and 2050

Country Domestic Country Domestic assets Country Domestic
rankings assets 2009 rankings 2030 (US$ bn, rankings assets 2050
in 2009 (US$ bn, in 2030 constant in 2050 (US$ bn,
constant 2009 prices) constant
2009 prices) 2009 prices)

1. US 14,772 1. China 31,018 1. China 72,228
2. Japan 7,486 2. US 26,841 2. US 46,544
3. China 6,006 3. Japan 9,774 3. India 38,484
4. UK 4,989 4. India 7,848 4. Japan 11,959
5. Germany 4,416 5. UK 6,082 5. Brazil 10,624
6. France 3,401 6. Germany 6,047 6. UK 9,112
7. Spain 3,271 7. France 5,136 7. Germany 8,477
8. Italy 2,993 8. Italy 4,053 8. France 7,909
9. Canada 1,618 9. Brazil 3,799 9. Russia 6,811
10. Australia 1,324 10. Spain 3,756 10. Mexico 5,965
11. Brazil 1,019 11. Russia 2,922 11. Italy 5,601
12. India 945 12. Canada 2,810 12. Turkey 5,502
13. Republic of Korea 935 13. Republic of Korea 2,515 13. Indonesia 5,129
14. Russia 413 14. Australia 2,286 14. Spain 4,992
15. Turkey 352 15. Mexico 1,804 15. Canada 4,761
16. South Africa 250 16. Turkey 1,738 16. Vietnam 4,426
17. Saudi Arabia 244 17. Indonesia 1,394 17. Republic of Korea 4,191
18. Mexico 241 18. Saudi Arabia 1,088 18. Australia 3,812
19. Indonesia 187 19. Vietnam 933 19. Nigeria 3,514
20. Vietnam 113 20. South Africa 843 20. Saudi Arabia 3,303
21. Argentina 86 21. Argentina 637 21. South Africa 2,722
22. Nigeria 47 22. Nigeria 524 22. Argentina 2,205

Source: IMF for 2009, PwC model projections for 2030 and 2050 (note the rankings relate only to these 22 countries; we would not rule out other developed countries
featuring in the rankings for some time periods although these are likely to lose ground to the emerging economies over time).


• Developed economies’ financial
Figure 12: Average annual real growth rates of domestic banking systems came under severe stress
assets 2010-2050 (% pa in US $ terms) due to the crisis. The value of
assets declined sharply and some
financial institutions faced potential
bankruptcy and had to be bailed out
Spain by governments. Emerging economies
by contrast were relatively shielded
Japan
from these effects, leaving their
UK banking systems in much better shape
Italy to fund long-term economic growth.

Germany • The financial crisis therefore led to
a general downward revision for the
France
estimates of sustainable trend growth
Australia across many developed economies,
Canada
but little change in long-term trend
growth projections for the major
US emerging economies (or even
Republic of Korea upgrades due to the crisis revealing
their greater resilience relative to
Brazil
earlier crises that often tended to
S. Africa focus on emerging economies such as
Latin America in the 1980s and early
China
1990s or Asia in the late 1990s).
S. Arabia

Turkey
Banking growth
Russia
differentials between
Mexico
emerging and
Argentina
developed economies
Indonesia
The strong growth in emerging
Vietnam economies’ domestic banking assets can
India be seen in Figure 12 where we plot the
compound annual growth rate of the
Nigeria different economies domestic banking
assets. Here we note that the emerging
0 2 4 6 8 10 12
and developed economies can be
divided into two groups: the developed
Source: PwC model projections economies appear to have low growth
(e.g. from US upwards in the chart),
whereas emerging economies tend to
have high growth rates, with Republic of
Korea as an intermediate case as with our
long-term GDP projections.


In our model the level of the quantity
Figure 13: Net interest margin by country (2008) of banking assets is determined by both
the overall size of the economy and
the rate of growth in GDP per capita,
which is assumed to translate into a rise
Spain Average NIMs by country group in the ratio of banking assets to GDP
UK G7 weighted average = 2.6% as economic development proceeds.
Japan
E7 weighted average = 4.1% Stronger rates of growth in both of these
All, weighted average = 2.8% variables push up emerging economy
Australia banking assets in our model. Nigeria,
Canada India, Vietnam, China and Indonesia
have the highest rates of growth in
Vietnam
GDP and GDP per capita in our sample
India and this translates to strong growth in
banking assets as well, albeit subject to
France
many uncertainties as discussed above
Germany and dependent on continuing to pursue
China broadly growth-friendly policies in these
countries.
Italy
As described in Section 3, this growth
Republic of Korea
is generally driven by improvements
S. Arabia in physical and human capital in
US
emerging economies and catching up
with technology levels in developed
Mexico economies. We also expect the real
Nigeria market exchange rate of all the emerging
economies to appreciate over time to
Turkey come in line with purchasing power
Indonesia parity estimates. This increases banking
assets measured in $ terms in all these
Russia
emerging markets. Population growth
S. Africa also contributes positively to growth in
Argentina India, Vietnam, Indonesia and Nigeria.
There is a much lower contribution from
Brazil population growth in China as a result of
its ageing population and its one
0 2 4 6 8 10 12 14 16
child policy.

Source: Fitch


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