High street banks in the UK are experiencing a significant decline in profits in 2024 as consumers increasingly turn to alternative lenders and online banking platforms that offer more competitive savings rates and enhanced digital services.
A recent KPMG report on the UK banking landscape revealed that the banking sector faced a collective pre-tax profit drop of £3.7 billion in 2024, the first decline since the pandemic’s conclusion. The average return on equity is projected to decrease from 15% to 10% from 2023 to 2027, equating to a staggering £11 billion reduction in annual profits unless proactive measures are implemented.
Traditional banks have been particularly impacted, losing £100 billion in savings deposits to challenger banks and alternative lending sources. Between 2019 and 2024, the market share of high street banks in deposits has dropped from 84% to 80%, while operational costs for these banks have surged by nearly 6% this year.
In light of these challenges, the report underscores the urgency for cost transformation, emphasizing priorities such as artificial intelligence integration, enhancing workforce productivity, and redesigning digital processes within financial institutions.
Peter Westlake, a partner in KPMG’s UK banking strategy team, stated, “Banks are navigating a landscape marked by lower growth and rising costs that necessitates swift transformation. Although we can expect profitability to remain relatively stable this year, the sector must demonstrate readiness for future challenges.”
He added, “The institutions that will prevail are those that transcend mere cost-cutting tactics and proactively address the impending market challenges through comprehensive business model transformation.”