AI Transformation and Global Banking Competition

Customer using AI driven mobile banking app with financial data analytics

AI in banking

Enjoy AI stories not written by AI while you can. In Ireland this month, arguably the most senior media figure in the country was suspended from his job after an investigation revealed that he was using LLMs to create news stories for his blog. The problem? The LLMs were creating fake quotes from real people, which the journalist failed to check. To make matters worse, when he issued an apology, it bore all the hallmarks of being written by AI. Using AI to save time might look like a good move, until you add in the necessity of having a human check the material. Then the time gets added back. False economies?

If you put an AI agent in charge of an investment fund, will it recommend investments in AI? Norway’s discovery of oil and gas off its coast in 1969 led to the creation of Statoil, and the world’s largest sovereign wealth fund aka Norges Bank Investment Management now worth $2.1 trillion. And in time the fund managers will start allowing AI to make investment decisions, the fund's head of machine learning and AI Stian Kirkeberg told a seminar. He said that at present, around half of the 700 staff at Norges Bank Investment Management code their own AI tools using Anthropic's Claude large language model. “Staff primarily use these tools to gather information to help them make decisions, Kirkeberg told a fund seminar on AI,” writes Reuters. “This ranges from monitoring the 7,000 companies the fund invests in ⁠for ESG and financial risk, to simulating a contract negotiation or preparing for company meetings. Kirkeberg said that in time, some AI agents will be allowed to make limited decisions autonomously. ‘The principle is that we make better human decisions by getting AI to analyse it for us,’ he told Reuters after the seminar. ‘At some stage, we're going to trust that the agent can make some of the decisions and we just monitor what it does,’ Kirkeberg said.”

The bank’s chief executive Nicolai Tangen is a big supporter of AI and described firms that fail ‌to adopt ⁠the technology as “complete morons”. “Tangen said the fund had invested ‘millions of crowns’ in AI and returned benefits ‘in the billions’, without giving specific figures or a timeframe. He expected the headcount to remain steady at around ⁠700 across its offices in Oslo, London, New York and Singapore, but roles would shift as a result of AI toward front-end investment from back-end administration.” The fund’s top holdings are all major US companies: Nvidia is the largest, followed by Apple, Microsoft and Amazon, and it has pivoted from Europe to US over the past decade. “It is because of the U.S. companies’ dominant position in AI we do not have strong companies in Europe in that field,” he said.

Hold my beer, says Solaris

Hold my beer, Solaris tells German bank Solaris, majority owned by SBI Group of Tokyo, says its aiming to transform itself into Europe’s first AI-native bank. Although Solaris has a banking licence in Germany, is not consumer-facing, but powers other banks and fintechs through its banking-as-a-service applications. SBI, which spun out of Softbank, says it invests in financial infrastructure and sees Solaris as its building block for future financial infrastructure in the EU. “To support this, Solaris is developing an operating model in which AI agents handle operational processes, while humans remain responsible for control and governance,” said the bank in a press release. “In the next phase, Solaris will further align its business model around standardized and reusable modules of its financial platform and redesign key end-to-end processes. A central focus is on existing partnerships such as ADAC and Boerse Stuttgart Group, for which Solaris is developing data- and AI-driven financial services.” (ADAC is the formidable German auto association, which has 21 million members.)

Blackrock warns on AI and inequality

Meanwhile, the man who runs the world’s biggest asset manager warned in an annual letter that AI risks deepening inequality, concentrating wealth among its biggest backers. “Fink used his annual letter to BlackRock shareholders on Monday to caution that AI could intensify wealth disparities if individuals lack a means to participate in its rise, writing that a growing part of the country felt capitalism was not working for enough people,” writes the FT. “The massive wealth created over the past several generations flowed mostly to people who already owned financial assets,” he wrote. “AI threatens to repeat that pattern at an even larger scale.” He added: “The broader question is who participates in the gains. When market capitalisation rises but ownership remains narrow, prosperity can feel increasingly distant to those on the outside.”

Fink said it is imperative that people have “broader and more accessible” ways to share in the future of AI. “AI will create significant economic value. Ensuring that participation in that growth expands alongside it is both the challenge and the opportunity”.

How Kenya is attracting African and pan-African bank

Bloomberg carries a long read looking at the attractions of Kenya for African banks. There’s several reasons for the interest, including the withdrawal in recent years of global banks, new minimum-capital rules (forcing partnerships), relatively low private credit penetration and high net interest margins. “The prize is a region of almost 500 million people, roughly the size of the European Union, with a $580 billion economy expanding at one of the fastest rates globally. ‘The region plays an important role in the relationships between the continent and other parts of the world, and we want to facilitate that activity,’ Standard Bank Group Chief Executive Officer Sim Tshabalala said in an interview. ‘A bank grows on the basis of growth in GDP, and financial deepening is increasing in Kenya, and we want to be part of that,’ he said, referring to gross domestic product,” reports the newswire. “East African economies are projected to grow at an average of 6.1% this year, outpacing 3.2% for the world, according to the International Monetary Fund. Still, less than 40% of residents have access to banking services, according to the World Bank’s Global Findex Database 2025. When examined from a traditional banking perspective, Kenya and East Africa remain ‘structurally underpenetrated,’ according to Maureen Kirigua, an analyst at NCBA. Private-sector credit is still low, while net interest margins are relatively high at as much as 6%, she said. ‘When you put growth, credit under-penetration and profitability together, it starts to make sense why Africa banks — and in particular, big South African banks — are keen on the market,’ Kirigua said.”

A win for banks on capital ratios

While big African players such as Nigeria and Kenya tighten capital requirements, the opposite is happening across the Atlantic. The question now: Has the Basel Endgame ended in Washington DC? US banks last week won what Reuters described as a “stunning victory” for the industry after regulators unveiled new rules for bank capital requirements which will free up billions of dollars for lending, dividends and share buybacks. A 2023 proposal under the Biden administration would have raised capital requirements by up to 19 per cent: that’s now been replaced by a modest decrease in requirements. “The sweeping proposal changes to how banks calculate funds they put aside to absorb losses should be a boon for Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citibank and other lenders that have fought to overhaul U.S. capital rules, although analysts warned some will benefit more than others. Capital levels at larger regional banks such as PNC and Truist would fall by 5.2%, the Federal Reserve said, while banks with less than $100 billion in assets would enjoy a 7.8% decline.”

How will this impact banking globally? It’s handing an immediate competitive advantage to US banks, though the Europeans and the UK may now alter their goals, having waited back to see what the US will do. But it’s also drawing attention to the limited powers of Basel. Some European lawmakers are suggesting that the EU should punish US banks: European attacks on both US banks and US tech companies are not going to go down well in the US.