During the 1980s, deregulation and increased competition from other financial institutions and from rapidly developing securities markets altered the environment in which banks operated. These influences, together with wider economic developments, have had a significant impact on the banking sectors performance. This article describes the performance of major international banks throughout the decade, highlights common themes and divergences between countries, and assesses their implications.
The main features of the 1980s were:
- Rapid growth in banks' assets, particularly in the mid to late 1980s, as financial markets liberalised and competition for international banking business grew. During the late 1980s, banks' assets in some countries grew more quickly than nominal GNP.
- A weakening in the profitability of most banks in recent years, as asset quality problems and competition intensified.
- Worsening asset quality, initially associated with the LDC debt crisis, and latterly with corporate and property-related lending in industrialised countries.
- A variety of responses by banks to developments over the past decade including: capital raising, better loan pricing, international retrenchment, cost reductions and a shift towards non-interest business and niche strategies.