Banks around the world could add as much as $7 trillion to their valuation over the next five years if they set a bold growth agenda, according to new research from Boston Consulting Group (BCG).

A report from the consultancy calls on banks to create a strategy that boosts growth, dramatically improves productivity, and makes banks more appealing to investors in order to roughly double current valuations and improve price-to-book ratios to an average of 1.25.

While the study is optimistic about the potential for banks to boost their value over the five-year period, it did say that banks are unlikely to return to the profitability levels and valuations that existed prior to the 2008 global financial crisis.

But BCG said that with a digital-first delivery concept and a detailed cost-driver understanding, it is possible for banks to design a "zero-based business model" that will see 40 per cent higher productivity than what is considered normal today.

“In more than a decade since the global financial crisis, banks have still not managed to adjust their business models to reflect the new reality they are operating in,” said Axel Weber, senior advisor to BCG, former chairman of UBS Group AG, and a co-author of the report. “Urgent actions and a bold vision are needed: banks must redefine where to compete, who to partner with, and how to deliver value amid continued and multifaceted disruption.”

The company also calls on banks to exit business lines or reduce capital exposure to low-return asset classes and invest in new areas of strategic growth that have "more favourable" levels of return on equity.

It added that dramatically simplified business models should be supported by an "actively managed balance sheet", as well as a modern platform operating model, a bold roll out of 'front-to-back' digitisation, and a "comprehensive reimagination" of functions that use both AI and generative AI.

“Banks cannot just aspire to be technology companies,” said Kilian Berz, vice chair of BCG’s Financial Institutions practice and a co-author of the report. “They have to be tech product companies that encapsulate the ideas of customer obsession, test and learn, and radical simplicity, along with embracing risk management and compliance as a strength.”

---