As the global economy enters 2025, the banking industry faces moderating growth, evolving regulatory frameworks and rapid technological advancements. Advanced economies are stabilising after prolonged inflationary pressures and aggressive monetary tightening, while emerging markets leverage digital finance, infrastructure investment and expanding regional trade to fuel growth. Banks across the world are balancing credit risks, capital buffers and sustainability goals while embracing new financial technologies and green finance initiatives. Advanced economies stabilise growth while navigating policy shifts However, the path forward for the global banking industry will be shaped by geopolitical rivalry and economic policies that influence trade, capital flows and financial stability. President Donald Trump’s return to the White House signals potential shifts in United States (US) tax policy, trade agreements and deregulation, which could stimulate domestic growth while disrupting global trade. Meanwhile, China President Xi Jinping’s continued economic leadership underscores China’s drive for financial resilience and expanded Belt and Road Initiative (BRI) investments, reinforcing the role of Chinese banks in cross-border financing. The US-China rivalry is increasingly evident in technological advancements, particularly in artificial intelligence (AI). DeepSeek’s launch of its R1 AI model reflects China’s ability to innovate under severe constraints. These developments suggest that China’s approach to efficient AI solutions may pave the way for new applications, challenging the dominance of US-led technological ecosystems. United States and Canada realign economies amid policy shifts The banking sectors in the US and Canada are poised for moderate growth as inflation subsides and central banks adjust monetary policy. According to the International Monetary Fund (IMF) World Economic Outlook published in January 2025, US gross domestic product (GDP) growth is projected to grow at 2.7 percent this year, while Canada’s economy is expected to have steady growth of 2.0% in both 2025 and 2026. As inflation cools, interest rate cuts by the Federal Reserve and the Bank of Canada are anticipated by mid-year, providing relief to borrowers and boosting credit demand. However, consumer debt and commercial real estate (CRE) risks remain persistent challenges for North American banks. Banking sector in the US and Canada faces economic moderation and regulatory shifts in 2025 President Trump’s economic policies—including extending and expanding tax reductions, deregulation and renewed infrastructure investment—are expected to stimulate short-term growth in the US. However, his protectionist stance on trade agreements and potential tariffs could disrupt global supply chains and increase cross-border lending risks. Trump’s focus on loosening banking regulations, especially around capital requirements and financial technology (fintech), may lead to greater competition and market volatility, benefiting fintech firms and investment banks while raising concerns over financial stability and risk management. In Canada, banks continue to grapple with high household debt levels, exceeding an estimated 181% of disposable income, with many mortgages set to renew at higher rates in 2025. Canadian regulators are expected to tighten oversight on housing loans while encouraging green bond issuances and sustainable finance initiatives. Europe and the UK focus on sustainable finance and debt management European and UK banks are entering 2025 with cautious optimism as inflation eases and monetary policy pivots towards rate cuts in the second half of the year. The Eurozone’s GDP is forecast to grow by 1.0%, while the UK’s economy is expected to expand by 1.6%, driven by trade recovery and domestic investment. However, high sovereign debt and real estate market corrections continue to pose risks to financial stability. European and UK banks brace for economic recovery and green finance expansion Emerging European economies navigate recovery and integration European Central Bank President Christine Lagarde remains a key driver of European banking strategy, emphasising green finance, digital transformation and inflation control. Under her leadership, the ECB is pushing for greater environmental, social and governance (ESG) integration in bank lending, with green bond issuances projected to exceed EUR 500 billion (about $520 billion) in 2025, as part of the Climate Bonds Initiative that calls for global green bond issuance to reach $5 trillion annually by 2025. Lagarde’s policies, while fostering long-term sustainability, may introduce short-term profitability pressures for banks navigating the costs of climate compliance and ESG disclosures. In the UK, Prime Minister Keir Starmer’s economic agenda prioritises market growth and investment, with regulators urged to support economic expansion by easing restrictions on capital markets. Starmer’s government is expected to introduce post-Brexit reforms that encourage foreign direct investment and fintech growth, creating opportunities for UK banks to diversify revenue streams and strengthen their role as global financial hubs. Japan and other advanced Asia Pacific economies address structural challenges and regional expansion Japan’s banking sector will benefit from the end of monetary easing with increase in real income boosting domestic consumption and demand, with GDP growth projected at 1.1% for 2025. The Bank of Japan’s normalisation of its previous negative interest rate regime which has constrained banks’ earnings, will ease pressures on bank profitability. It will however not reverse the expansion of major institutions into Southeast Asia and Latin America in search of higher returns. Japanese banks are focusing on infrastructure financing and regional acquisitions to offset slow domestic growth. Japan and advanced Asia Pacific economies seek growth through regional expansion and digital transformation South Korea and Singapore’s banking sectors are leading the charge in digital finance and fintech integration, leveraging neobank licences and cross-border digital payments to expand their reach. Monetary Authority of Singapore (MAS) is actively promoting sustainability and has implemented various projects to position the city-state as a leader in green and digital finance. Similarly, Australia’s banking sector continues to leverage technological advancements and sustainable finance initiatives to drive economic growth. The country’s GDP is projected to grow by 2.1% in 2025, reflecting stable domestic demand and ongoing investments in infrastructure and green technology Despite Japan’s economic challenges, regional partnerships and technology-driven expansion offer opportunities for growth, particularly in Southeast Asia’s fast-growing digital economy. Emerging markets and developing economies prioritise digital finance and infrastructure growth Emerging Asia remains the engine of global growth, with the IMF forecasting China’s GDP to grow by 4.6% and India’s by 6.5% in 2025. Chinese banks are playing an increasingly central role in regional financing, driven by infrastructure investment through BRI. However, China’s property sector downturn and rising corporate debt pose credit risks for banks, prompting regulators to introduce debt restructuring measures. Growth in emerging and developing Asia to moderate in 2025 India’s banking sector is booming, driven by digital finance adoption and government initiatives promoting financial inclusion. Indian banks are expanding their small and medium sized enterprise (SME) lending programmes and mobile banking platforms, enhancing access to credit across underserved rural areas. Southeast Asia’s growth outlook for 2025 reflects continued economic resilience, with GDP across the region projected by the IMF to grow by 5.1%. This sustained growth, while slightly slower than previous years, underscores the region’s role as a driver of global economic expansion. Countries like Indonesia, Vietnam and the Philippines remain at the forefront, benefitting from strong domestic demand and expanding digital economies. Southeast Asian banks are increasingly focusing on digital transformation and financial inclusion, leveraging technology to enhance cross-border payments and expand mobile banking services. Governments across the region, supported by central banks, are implementing policies to boost financial stability, foster green finance initiatives and encourage infrastructure investment. The banking sector’s push for regional integration and fintech partnerships is accelerating, driven by regulatory support and rising consumer demand for digital financial services. Despite these positive developments, challenges persist. The region faces tightening global financial conditions and potential capital outflows, particularly if advanced economies adjust their monetary policies. In addition, climate risks and the need for substantial infrastructure financing remain pressing issues for banks seeking sustainable growth. Nonetheless, Southeast Asian economies continue to attract foreign investment, reinforcing their position as a dynamic hub for economic activity and banking innovation in 2025. Latin America, the Middle East and Africa unlock growth through digital innovation The IMF World Economic Outlook (January 2025) projects GDP growth in Latin America and the Caribbean to rebound to 2.5% in 2025, with Brazil forecast to grow by 2.2% and Mexico by 1.4%. This moderate growth reflects fiscal tightening and a cooling labour market, yet the banking sector continues to benefit from commodity exports, fintech adoption and the expansion of digital payments. Brazilian and Mexican banks are increasingly investing in blockchain solutions and sustainable lending to mitigate inflation volatility and sovereign debt risks, which remain key concerns. Caribbean economies embrace digital finance and sustainable development In the Middle East and Central Asia, the region’s GDP is expected to grow by 3.6% in 2025, up from 2.4% in 2023, driven by a recovery in oil production and shipping activities. Saudi Arabia’s growth is forecast at 3.3% and the United Arab Emirates at 5.1%, reflecting renewed investments in infrastructure, fintech ecosystems and sustainable finance. Middle Eastern banks are actively expanding into green finance and digital banking, positioning themselves as key players in cross-border trade and capital flows. However, geopolitical uncertainties and fluctuating oil prices continue to shape the risk landscape for financial institutions in the region. Middle East and Central Asia region faces economic turmoil, eye recovery in 2025 Sub-Saharan Africa’s growth is projected to rise from 3.8% in 2023 to 4.2% in 2025, driven by easing supply constraints and improving weather conditions. Nigeria’s GDP is forecast to grow by 3.2%, while South Africa’s growth is expected to rise to 1.5%. The region’s banking sector is capitalising on mobile banking innovations, public-private partnerships (PPPs) and digital finance solutions to drive financial inclusion. Banks in Nigeria, Kenya and South Africa are expanding access to credit, though challenges related to credit accessibility and regulatory stability persist. Sub-Saharan Africa struggles with modest economic growth in 2025 As these regions adapt to economic realignment and technological disruption, the banking industry will play a pivotal role in shaping financial stability and economic growth. Banks are increasingly turning to digital transformation, sustainable finance, and regional diversification to maintain profitability and resilience. Despite the uncertainties, aligning with evolving economic policies and fostering inclusive growth will allow financial institutions across Latin America, the Middle East and Africa to position themselves for long-term success in a rapidly evolving global economy. As the global banking industry adapts to economic realignment and technological disruption in 2025, political leadership, regulatory frameworks and digital transformation will shape the sector’s future. Financial institutions must embrace sustainable finance, digital innovation and regional diversification to safeguard profitability and mitigate risks. By aligning with evolving economic policies and embracing inclusive growth strategies, global banks will remain pivotal players in fostering financial stability and economic expansion. Click here to access the full publication: http://www.theasianbanker.com/publication/online/all
