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Few industries were left unscathed by the global financial crisis, but the banking sector was among the worst hit and is still nursing the wounds nearly seven years on.
In the eyes of many, global investment banks conducting risky mortgage-backed trades were largely responsible for creating the crisis.
As a consequence, consumer trust in the sector plunged. The past seven years have seen extensive regulation designed to clamp down on opaque investment banking practices, hitting profits and causing a number of lenders to retreat from the sector.
While some banks have managed to salvage their brand, others have been permanently tainted.
Royal Bank of Scotland, once the world’s biggest bank with assets of £2.4tn, has been forced to undertake a sweeping restructuring after seven successive years of net annual losses.
The lender, bailed out by the UK government and still 80 per cent owned by taxpayers, recently unveiled plans to withdraw from global markets, cut its balance sheet by £65bn and radically shrink its investment banking arm.
“One of the biggest losers is the RBS brand,” says James Daley, of consumer site Fairer Finance. “It has sunk to the bottom of [our] customer satisfaction tables over the past few years. It has gone from bad to worse, punctuated by an IT failure a few years ago, when people couldn’t get access to their cash.”
Conversely, Santander has risen up the customer satisfaction tables. The bank benefited from the financial crisis in that it was able to acquire struggling lenders — such as Alliance & Leicester — cheaply. “The bank is now gaining customers for its current accounts and its customer rating is up from the bottom of the table where it languished six years ago,” says Mr Daley.
Regional banks are also faring better than global “universal” banks that attempt to combine investment and retail banking.
Millward Brown, the WPP research firm responsible for compiling the top 100 global brands list, believes regional banks are less subject to regulations and have forged better connections with consumers. HSBC’s brand value, for example, has slipped 11 per cent compared with last year, while Wells Fargo, a US retail bank, is up 9 per cent.
But all banks face the threat of being disrupted by technology groups such as Apple and Google, which are moving into payments and making banking easier for consumers ever more reliant on mobile devices. Visa, for example, has seen its brand value soar 16 per cent over the past year, making it the most valuable financial services brand globally. However, experts believe the card provider must evolve to survive in an increasingly digitally focused world.
John Lunn, a partner at business consultancy firm Moorhouse, believes the move to digital is tough for card providers, because “they are so heavily dependent on plastic”, such as credit and debit cards, as the core of their business.
Christophe Duthoit, a senior partner at Boston Consulting Group says: “The real question is: how do you transform an existing bank to make it more digital? The kind of customer experience offered by technology groups such as Google and Amazon is unparalleled by banks. They need to adapt and transform to offer a similar digital customer experience.”
Insurance firms have had less of a torrid time, by comparison. “In the UK market, the insurance sector has been ‘steady as she goes’, especially in the general insurance market, where a lot of it is driven by price and scale,” says Mr Daley.
He notes that Admiral and Direct Line continue to be two of the most profitable general insurers. “Aviva and Prudential are a bit more complex. They were steady until this year, when [UK] Budget reforms have thrown things into the air. But in terms of the financial crisis, they emerged relatively unscathed.”
However, the insurance market experienced turmoil in 2008 when the US government was forced to bail out AIG in a $182bn rescue deal.
After years of clamping down on banks, regulatory scrutiny is starting to shift towards the insurance sector. The Financial Conduct Authority earlier this month revealed shortcomings in the insurance market following a wide-ranging review.
The watchdog said insurers are “not always providing customers with clear information about different payment options” when they buy general insurance products.
“We have not scratched the surface of the insurance market yet because new regulations are about to bite,” says Richard Goold, a partner at Moorhouse.
HDFC: Domestic focus pays off
As one of the oldest private sector banks in India, HDFC is well known in the country.
Its domestic focus and lack of international presence helped the bank emerge from the financial crisis unscathed, as India proved more resilient than other countries amid the global economic turmoil.
The bank was launched in 1994 by its parent company, the Housing Development Finance Corporation, when the Indian government opened the market for private sector bank licences.
With more than 3,600 branches in India and a balance sheet of about $100bn, it is one of the largest private sector banks in the country. The parent company retains a 20 per cent stake in the bank, while the remainder is owned by institutional investors.
Aditya Narain, head of research for India at Citigroup, says it has “had a strong run” over the past 20 years, offering both corporate and retail loans in equal measures. “It is a high-quality bank in terms of quality assets.”
The bank provides regular deposits, money transfers and business financing. This “plain vanilla business” is one of the reasons the bank was largely unaffected by the financial crisis, says Mr Narain. Indeed, its brand has entered the BrandZ top 100 global brands index for the first time, ranking 74 in terms of value.
Regional banks have generally fared better in terms of brand value than global lenders, as they were more susceptible to the economic downturn. Part of the reason why the Indian banking system has weathered the storm is its strong regulatory framework, requiring banks to hold substantial cash and government bond buffers.
Analysts at Barclays believe that HDFC in particular is “very well positioned”, with increased investment spending by the bank on growing its infrastructure, a strong balance sheet and deposit franchise.
HDFC Bank is expanding its branch network, with 355 added in the fourth quarter of last year alone, which analysts believe “bodes well for future growth”. It is also noted for being the first in India to enter new geographical markets and sectors, such as digital banking.
It claims to have been the first bank in India to launch international debit cards, as well as mobile banking and retail silver bars. Developing a strong domestic customer base is central to brand value.
The bank has focused on expanding its reach across India, forging a partnership with the country’s Postal Department in 2008 to push into more rural locations. This is in stark contrast to UK banks, which are retrenching to save on costs.
Barclays says HDFC is poised to benefit from a market recovery due to its robust financial position, especially as it continues to expand its presence and brand into semiurban areas.