High street banks in the UK have lost £100bn in deposits as savers shift to online rivals, according to KPMG. The traditional lenders' market share in deposits fell from 84% in 2019 to 80% in 2024, as challenger banks, specialist lenders and building societies attracted customers with higher savings rates.
The banking sector saw a £3.7bn drop in pre-tax profits last year, the first major downturn since the pandemic recovery. KPMG warned that average return on equity is expected to fall from 13% in 2023 to 8% by 2027, equivalent to an £11bn annual profit decline.
The exodus follows accusations of profiteering, as banks offered low savings rates while raising mortgage and loan costs. Executives from Lloyds, NatWest, HSBC and Barclays faced regulatory scrutiny in 2023, sparking debate over a windfall tax, though UK politicians have not implemented one.
KPMG's Peter Westlake noted: 'Banks are facing a lower-growth, higher-cost environment that demands transformation at pace.' Bank costs rose 6% in 2024, and falling productivity could further pressure profits. Westlake suggested embracing AI to boost profits, stating: 'The winners will be those that move beyond tactical cost-cutting.'
