Banks must diversify income and review pricing: analysts

They must identify customer relationships with low or negative profit.

Financial institutions with a well-diversified income stream and a pricing strategy that takes into account clients’ risk appetite will weather the trade uncertainties better, according to Simon Kucher.

The low global economy is reportedly heading towards a low-interest rate environment, which means that banks’ reducing reliance on interest income is the desirable strategy moving forward.

“Growing ancillary services like investments, insurance commissions, and transaction banking services, can add resilience,” Simon Kucher said in a 28 April 2025 blog post, written by senior partner Jens Baumgarter, partner Morten Kaae Sorensen, and manager Mads Emil Larsen.

Increasing selected fees as well as a general review of the bank’s efficiency might also be needed to compensate for lower interest income, they said.

“As part of this, identify customer relationships with low or negative profit. If the relationships cannot be made profitable via cross-selling, increasing prices or reducing discounts and special conditions to correct the mispriced client relationships might be necessary,” they said.

Operationalize pricing
Banks must also revise their risk appetite and adopt a data-driven way to operationalize pricing, they said.

To do so, banks must create transparency on client-by-client profitability, which will then support data-driven simulations, insights, and strategic decision making.

“This provides an understanding of how different pricing strategies impact clients while simulating how their evolving risk profiles impact profitability and return on equity (ROE),” Simon Kucher said.

Apart from diversifying their income stream away from interest income and reviewing their pricing strategies, banks must assess their loan portfolios to see who will be most impacted by the uncertainties.

“Factors such as export dependency, competitive landscape, market shifts, product substitutability, and pricing power all shape how severely a company or industry may be affected – and how resilient it will be,” Simon Kucher said.

Businesses with high exposure to the US, limited ability to pass on costs, or vulnerable price positioning, are more likely to face margin pressure, directly impacting profitability and creditworthiness, it added.