As the global banking industry stands at a crossroads after years of record profits, a new report warns that scale alone will no longer define success.

The Global Banking Annual Review 2025 has warned that the era of relying on scale and broad strategies is fading, with “precision” now emerging as the key driver of performance and resilience in the sector.

According to the report, produced by global consultancy McKinsey & Company, the banking industry has quietly recorded historic gains in recent years, despite headlines dominated by layoffs, interest rate volatility, and geopolitical uncertainty. 

Between 2019 and 2024, funds intermediated by the global banking system — including traditional and nonbank providers — grew by $122 trillion, or about 40 percent, buoyed by growing household and institutional wealth. 

Banks’ revenues after risk costs reached a record $5.5 trillion in 2024, while total net income climbed to $1.2 trillion, the highest ever achieved by any industry.

However, the report cautions that investors remain skeptical about banks’ long-term value creation potential. Valuations of the global banking sector trail those of other industries by nearly 70 percent, and the sector’s price-to-book ratio of 1 remains well below the cross-industry average.

McKinsey warns that the post-pandemic peak in banking performance may soon give way to a period of slower growth and tighter profitability. “After the peaks of the past few years, the banking sector may experience a reversion to the mean,” the report notes, highlighting declining interest rates, shifting demographics, and disruptive competition from fintechs as key challenges.

The review argues that many banks have relied on “time-worn” approaches that no longer generate sufficient value. 

For example, global banks collectively spend around $600 billion a year on technology, yet productivity remains weak. Large-scale mergers and acquisitions have not consistently improved profitability, and broad customer segmentation strategies have failed to deliver meaningful differentiation.

To adapt, McKinsey suggests that banks must adopt “precision strategies” — targeted, data-driven approaches that allow them to compete effectively even in slow-growth environments.

The report outlines a “precision toolbox” that can be applied across institutions of any size. The first pillar is technology, where banks are advised to focus sharply on systems and innovations that improve workflows, enhance customer experience, and directly support new business models. In particular, the rise of agentic artificial intelligence (AI) — advanced systems capable of autonomous decision-making — presents both opportunities and risks for financial institutions.

The second pillar is the new consumer. Banks are being urged to move beyond traditional segmentation and pursue hyper-personalization — designing products and services tailored to individuals rather than demographic groups. This approach, McKinsey says, could rebuild customer trust and loyalty, which have eroded amid growing competition from fintechs and digital lenders.

Third is capital efficiency, emphasizing micro-level optimization of balance sheets. Instead of sweeping capital reallocations, banks are encouraged to analyze returns at a granular level — product by product, client by client, and even down to individual risk-weighted assets. This precision can free up “trapped capital” and redeploy it in areas that yield higher returns.

The fourth pillar, targeted M&A, calls for an end to consolidation for its own sake. Instead, banks should seek acquisitions that bring specialized capabilities or expand their reach in specific niches or regions.

For African banks, the report’s message is particularly relevant. The continent’s financial institutions are expanding rapidly across borders, investing heavily in digital infrastructure, and competing with fast-growing fintechs for retail and SME markets. Yet, many face the same valuation challenges and efficiency gaps as their global peers.

With the African Continental Free Trade Area (AfCFTA) opening opportunities for cross-border trade and payments, precision could be a strategic advantage for banks seeking to capture emerging markets without overextending balance sheets. McKinsey’s emphasis on targeted growth suggests that African banks should prioritize data analytics, AI-driven credit scoring, and tailored financing products to strengthen competitiveness.

The report also highlights the growing influence of private capital, which has expanded by 17.2 percent annually since 2019. This trend is reshaping global intermediation flows and is increasingly visible in Africa, where private equity and development finance institutions are filling funding gaps left by traditional banks.

While the sector’s recent financial performance has been strong, McKinsey cautions that many banks have yet to convert their windfalls into lasting transformation. Despite record profits between 2021 and 2024, capital market confidence remains low, reflecting doubts about sustainability in a changing environment.

Macroeconomic shifts — including the normalization of interest rates, digital disruption, and tightening regulation — could further erode returns on equity (ROE), pushing many banks close to or below their cost of capital.

In response, the report concludes, banks of all sizes — especially in emerging regions — must embed precision across every layer of strategy. “Precision, not heft, is the great equalizer,” it declares. “In the age of AI, even smaller banks can capture disproportionate rewards by embedding precision into every dimension of strategy.”

For Africa’s banking sector, this may well define the next decade: thriving not through size or expansion alone, but through strategic focus, innovation, and intelligent use of data to meet the continent’s diverse financial needs.