2. What are the challenges facing your business or geography?
To the question of what is the biggest challenge, the overwhelming response is that posed by competition and the continued pressure on margins. Almost 40% of The Banker’s respondents cited this as the most pressing challenge to their business.
The market is still consolidating in the face of stiff competition: in the US, 75% of FX transactions last year were conducted by only 11 banks, compared with 20 banks in the 1998 BIS survey; and in the UK, only 16 banks were responsible for 75% of the volumes compared with 24 in 1998.
“The German market will be under tremendous margin pressure in the corporate and institutional market because many foreign banks are trying to enter the market, grab market share and place themselves on clients’ bank lists,” says Klaus Hoffmann, head of FX at Commerzbank. “The main way to attract [business] will not only be via expertise and advisory services, but simply through extremely aggressive pricing.”
The emergence of electronic trading, which increased transparency and pushed margins down further, forced banks to revamp or wholly re-architect their traditional product sets and service delivery. More than 17% of respondents cited technology demands, both in terms of investment and human resources issues, as a serious challenge facing their business.
According to many banks, getting the right platform and the right
people have become the two most important factors in determining the success of an FX operation. “As the business grows in scale and complexity, hiring, training and retaining good people in the front, middle and back office is critical. Building quality technology to cope with the processes and risk management needs of a high volume and high derivative content business is key to success,” says JPMorgan’s Mr Rawlins.
RBC’s Mr Henderson agrees: “The ongoing challenge [for banks is] how much to spend on technology and which type of technology to invest in, along with [that] of ensuring that we attract and retain the best staff with the necessary ethics and expertise. [These are] global issues.”
