Although interest rates are poised to rise, commercial loan growth has been painfully slow for regional banks in the last couple of quarters. At the same time, they are waiting for President Donald Trump to make good on promises to ease the regulatory burden on industries that he has identified as critical to the growth of the US economy, including banking and energy.

“The challenge for regional banks is just finding good quality earning asset growth,” says Harris Simmons, chairman and CEO of Zions Bancorporation in Salt Lake City, Utah, which won our award for the Rocky Mountain region.

A key issue is that alternative lenders—from credit hedge funds, to fintech firms, to lending clubs that charge lower interest rates—are emerging as the main competitors to regional banks, according to Simmons. In response, regional banks are scrambling to make their small and mid-market lending businesses more efficient.

“In small-business loans, we have totally reengineered the process over the last year. We are just in the process of rolling it out,” says Simmons. “We’ve eliminated a lot of steps in the process, where we had multiple people approving parts of the deal, and just streamlined the underwriting process.”

Regional banks are playing on a critical advantage they have long enjoyed over national “money center” banks like Citi, JPMorgan Chase or Wells Fargo. Regional banks enjoy the unparalleled capacity of relationship managers at local branches to keep track of thousands of small loans in their own backyards. Zions, for example, issues corporate loans in amounts as low as $25,000 to small and medium-size companies across the spectrum of retail, manufacturing, agricultural and other industries; but its median loan size is $5 million, according to Simmons.

More importantly, these relationship managers are known for their expertise in local industries, making them immune to the knee-jerk reaction of reining in credit lines when those industries fall into cyclical downturns. First Republic, our winner for the Far West, specializes in bridge loans for private equity and venture capital in Silicon Valley, with a legacy strength in private wealth management for Hollywood stars and magnates. Eastern Bank of Boston, Massachusetts, our winner for New England, specializes in financing local commercial and residential real estate developers. Comerica of Dallas, Texas, our winner for the Southwest, is known for its expertise in the energy industry, which accounts for about two-thirds of its customers. U.S. Bancorp of Minneapolis, Minnesota, our winner for the Plains region, receives high marks from small and medium-size companies for loans, lines of credit, and cash management. KeyCorp of Cleveland, Ohio, our winner in the Great Lakes region, wins kudos from its corporate clients for account management, fees, and problem resolution.

“As a Main Street bank, PNC is organized around a local-delivery model that is built on strong relationships that make us part of the communities we serve,” says Bill Demchak, chairman, president and CEO of PNC Financial Services Group in Pittsburgh, Pennsylvania, which won our award for the Mid-Atlantic. “This combination of local decision-making, backed by PNC, gives us a distinct advantage over our larger competitors and allows us to better serve all of our stakeholders.”

SunTrust, our winner for the Southeast, has taken this strategy one step further through its ownership of SunTrust Robinson Humphrey, an investment bank with in-depth industry expertise in business services, financial sponsors, building products, healthcare, consumer and retail, media and communications, energy, transportation, financial services and technology, and real estate. SunTrust raises funds for its clients in real estate investment trusts (REITs), initial public offerings (IPOs), bond issues, and other capital-market transactions.

“Our strategy has been to bring together that industry and product expertise in a way that’s unique, serving that middle-market client a little bit differently than they’ve been served historically by other regional or superregional banks,” says Allison Dukes, head of commercial and business banking at SunTrust in Atlanta, Georgia.

The effort is shrewdly timed. Earlier this year, SunTrust’s annual business-confidence survey of small and mid-market businesses found that they were optimistic on not just the growth of the US economy but their own business growth. In particular, the survey discovered that they were looking for ways to capitalize on anticipated tax cuts under the Trump administration.

“In order to help mid-market clients meet their growth objectives, SunTrust recently added a dedicated team to serve commercial M&A needs, which are expected to be strong over the next few years,” says Dukes. “This will allow us to continue to deploy our capital-markets products and expertise from across our platform to serve clients in both upper and lower-middle markets.”

Of course, the risk of lending more money to small companies is that defaults could rise if the economic gains peter out this year. So, as they gear up for a commercial lending spree, regional banks are simultaneously stepping up their own investments in managing the risks involved. “That’s an area where we remain very vigilant around credit-risk management,” says Dukes.

Still, these efforts won’t be enough to ensure the continued growth of regional banks without easing a regulatory burden that has imposed many of the same restrictions that Wall Street banks face. “Regional and small banks that play a vital role in our economy are being hamstrung by one-size-fits-all regulation as it has evolved since the financial crisis,” says PNC’s Bill Demchak. “Regional banks like PNC and community banks differ dramatically from the global systemically important banks on Wall Street. We don’t represent the same sort of systemic risk.”

This year, regional banks are depending on the Trump administration to ease the costly burden of banking regulation. “What we’re seeing in the new administration is an attitude that they want to see banks helping the economy to grow,” says Zions’s Simmons. “In the discussions I’ve been part of, and have seen taking place, the regulators and some of the senior people in the administration want to be sure that the cumulative weight of all of the regulations coming out of Dodd-Frank doesn’t totally suffocate the industry and drive all of the business to nonbank lenders.”

Such encouraging signs from Washington have afforded enough confidence that the finance industry will flourish at the local level to plan expansions in specific corporate banking lines this year. “Specific to corporate customers, we believe we have real near-term opportunities in the treasury management piece of our business,” says Demchak. “In the coming year, we will be focusing on an expansion of our middle-market franchise.”

PNC also plans to offer new services for corporate clients that do business across borders. “We also will continue to develop innovative solutions to meet the unique needs of our corporate and institutional banking customers doing business internationally, where we already have helped to lead the effort to build secure person-to-person and business-to-consumer, real-time payment solutions,” says Demchak.

With the scent of ambition in the air, it’s hard to imagine what—if anything—is holding back these banks. “Generally, most regional banks are feeling like there is a little more tailwind than headwind at the moment with the prospect of possible further modest interest rate hikes, which would help regional banks’ net interest margins,” concludes Simmons. They can use all the help they can get.

“The cyclicity of our industry and those we do business with is the very reason for our diversified business model,” says Mike Hagedorn, president and CEO of UMB Bank of Kansas City, Missouri, our pick this year for best midmarket provider in the US Midwest. “We continue to diversify our businesses and products to further drive growth despite cyclicity.”

US regional banks have maintained a high degree of “touch” with corporate clients by assigning a single relationship manager to each company. This minor detail serves to distinguish regional banks from national leaders like Bank of America or Citi, which typically assign each corporate client a separate relationship manager for each service, from trade finance to treasury management. Smaller companies typically employ too few in the finance department to support such a division of labor.

Through acquisition, many of these banks have grown a diverse array of business lines. Based in Pittsburgh, Pennsylvania, PNC, the best in the Mid-Atlantic this year, stands out as the shareholder of more than 20% of BlackRock, which, with $5.1 trillion in assets under management, is the world’s largest money management firm. Others are growing so large and diverse through acquisition that they are vertically integrated with the capital market services that they now provide, from equity and debt capital markets to M&A advisory.

A case in point is SunTrust Bank, which Mark Chancy, wholesale banking executive at the bank, describes as a “completely integrated wholesale ecosystem.” Headquartered in Atlanta, Georgia, where it has traditionally served the agriculture and logistics industries, SunTrust is ramping up its capacity to raise funds for biotechnology companies by hiring professionals in equity research, equity origination, M&A advisory and investment banking. In December, the bank expanded into real estate finance by acquiring Pillar Financial, a lender with Fannie Mae, Freddie Mac and FHA licenses.

“We are connecting commercial clients,” says Chancy. “We are trying to help them fund their strategy and potentially partner with other companies—through acquisitions, equity structure and debt—and to provide the liquidity and cash management solutions they need.”

Our winner in the Southwest region, San Antonio, Texas-based Cullen/Frost Bankers is respected for its expertise in raising capital in technology and oil and gas sectors, as well as financing trade and investment with Mexico. This year’s West regional winner, Silicon Valley Bank of Santa Clara, California, is known for financing wine-related industries and the technology sector, and for facilitating private equity deals. It has a branch in London and a joint venture with Shanghai Pudong Development Bank in China, both of which it uses to source private equity investment.

To hear some analysts tell it, many regional banks are merely taking a breather from a shopping spree. “This is an industry that’s in consolidation,” says Chris McGratty, director of equity research at Keefe, Bruyette & Woods in New York. “Once you have acquired a bank, you’re more likely than not to acquire another one.”

The past year will not go down in history as a bright spot for investment banks. Driven partly by conflict in the Middle East and falling energy prices in early 2016, equity prices tumbled and investors fled to safe havens like gold and, to some extent, bonds.

As a result, investment banks had a hard time raising money for corporate clients. Take related revenue as a measure of hardship: In calendar year 2016 banks reported a 5% decline year-on-year in revenues from worldwide investment banking activities—ranging from raising money for their clients on stock and bond markets to advising them on mergers and acquisitions. All told, global investment banking revenue was only $73.6 billion, the lowest amount since 2012, deep in the global recession, when the figure fell to $69.3 billion, according to Dealogic.2016, equity prices tumbled and investors fled to safe havens like gold and, to some extent, bonds.

The few investment banks that excel in this challenging environment distinguish themselves by consistently making wise use of their access to global capital markets, sustaining strong balance sheets, leveraging their most talented bankers, exploiting low interest rates and convincing their clients to price deals realistically.

The winners of our Best Investment Banks awards were selected by Global Finance editors with input from industry experts using a wide range of criteria from market share to number and size of deals, including service and advice, structuring capabilities, distribution network, efforts to address market conditions, innovation, pricing, after-market performance of underwritings, and market reputation.

UBS stood out on these criteria and wins our overall award for Best Investment Bank worldwide. UBS displayed a superlative command over capital markets in the M&A arena despite increasingly volatile asset prices. In the United States, the 155-year-old Swiss bank was quick to spot an opportunity to advise regional US banks on mergers and acquisitions to increase their capitalization. The bank also showed a knack for orchestrating deals in cash. In one telling example, UBS served as the lead financial advisor to EverBank of Jacksonville, Florida, on its $2.5 billion sale to Teachers Insurance and Annuity Association (TIAA) in the largest all-cash M&A transaction since 2009, according to UBS.

In global equity capital markets, UBS has stood out among the bookrunners of several of the world’s most lucrative initial public offerings (IPOs) in a year

that will go down in Dealogic’s records as the worst for IPOs since 2012. The Swiss bank got in on some of the hottest deals in Asia-Pacific, the only region in the world that saw solid growth in capital markets last year. UBS was a bookrunner for the $7.4 billion IPO of Postal Savings Bank of China last September in the world’s biggest IPO since Alibaba raised $25 billion in 2014. All told, UBS raised a formidable $24.3 billion in 194 equity deals for its clients last year, according to Dealogic.“The M&A market is white-hot at the moment,” says Piero Novelli, UBS global head of advisory. “We are putting extra focus on our most important clients and ensuring we give the greatest support to our most effective bankers.”

Novelli emphasizes that UBS has paid attention to developing its teams, particularly their ability to collaborate globally. “We are deploying our top bankers and best advisors on the most important clients and most promising deal situations to ensure we are extremely focused,” he says.

Renewed interest in M&A paved the way last year for a renaissance in equity-linked debt, one of few bright spots in the world’s capital markets. It helped that interest rates were low, making it cheaper for companies to issue convertible bonds, while high share prices made convertible bonds more attractive by mitigating investor concerns that their equity at maturity would be diluted by the issuance of new shares.

Multinationals like BP responded by issuing convertible bonds just to “show they are being agile” enough to “tap another pocket of investors,” says Thomas Feuerstein, managing director of equity-linked origination at Societe Generale Corporate & Investment Banking, which underwrote a £400 million ($429 million) convertible bond for BP last year. SG wins our Best for Equity-Linked Debt award.

“Back in 2010, the market was driven by small-cap issuance,” explains Feuerstein. “Now we see very large issues, like BP, more frequently.”

Last year was especially challenging for companies that tried to list their shares on the stock market for the first time. Morgan Stanley won our award for Best in IPOs by using its superlative access to new issuers and investors around the world to carve out the largest slice of a shrinking pie, raising $262 million for its clients in 21 initial public offerings in the US and 14 others in Europe, the Middle East and Africa. Bear in mind that the revenue that all investment banks earned from IPOs worldwide fell to just $4.1 billion in 2016, the lowest level since 2012, when they earned only $3.9 billion.

This year will present a whole new set of challenges for our winners. On March 2, just 15 days after Morgan Stanley raked in $26 million in fees as lead underwriter of the IPO for Snap, the parent company of social media phenomenon Snapchat, the shares were trading 19.5% below the IPO price of $24.28. That experience may impact interest in the IPOs of financial technology company Palantir, online car service Uber, and other technology companies.

REGIONAL WINNERS

At the regional level, our award for Best Investment Bank in North America goes to Goldman Sachs, which secured a strong lead in the region’s M&A league tables by advising its clients on no less than 202 mergers and acquisitions that were valued at $745.1 billion, according to Dealogic. This strong lead secured a 33.5% share of the region’s M&A market for Goldman. The Wall Street titan also ranked a close second to J.P. Morgan in North America’s equity capital markets, raising $28.9 billion in 188 deals and claiming an 11.8% market share.

In Western Europe, the shock waves that the Brexit vote sent across the Continent wreaked havoc on investment bank activity. More challenged there than anywhere else on earth last year, Europe’s investment banks reported less revenue from investment banking than at any time in the previous 13 years, pulling in a mere $16 billion. The UK accounted for a smaller share of investment banking in Europe overall than in the previous year, falling to just 25%, according to Dealogic.

Historically among the most stable and best capital banks in the eurozone, Deutsche Bank, which won our award for Best Investment Bank in Western Europe, served as the lead bookrunner for the IPO of innogy SE, the green energy business of German electrical utility RWE. Raising $5.2 billion on the Prime Standard of the Frankfurt Stock Exchange, innogy was the third largest IPO of 2016 — and Europe’s biggest since Glencore Plc went public in 2011. This year, Deutsche Bank expects revenues from investment banking to receive a boost from an improved economic outlook, according to a statement by the bank.

Central and Eastern Europe (CEE) benefited from oil prices first rising and then stabilizing last year. Despite US sanctions against Russia in retaliation for allegedly meddling in the US presidential election last November, and international sanctions tied to Russia’s invasion of Ukraine in 2014, higher oil prices, combined with signs that economic growth was returning and inflation had decelerated, helped to propel a 17% surge in the MICEX index of Russian stocks during the last two months of 2016.

“Even after these rises, CEE equities still look undervalued relative to developed markets; and together, these factors are reigniting investor interest in the

region,” says Riccardo Orcel, deputy CEO of VTB Group, the parent company of VTB Capital of Moscow, which wins our award for Best Investment Bank in Central and Eastern Europe. “We have also noticed that international banks are more interested in returning to the Russian market.”

In the bond market in particular, Orcel sees strong demand for high-quality issuers from the CEE. Bond prices are tightening up but still providing investors with attractive yields compared to those of bonds being issued this year in developed markets. Orcel cites a $500 million eurobond issued by Russian Railways at a yield of just 4.375%, showing strong demand, in a deal that VTB Capital led. “We have a strong pipeline of capital markets deals in the near term,” says Orcel. “The increased availability of attractive rates in the international capital markets is likely to mean that public issuance increases further this year.”

In Asia-Pacific, the only region to see solid growth in capital markets last year, banks reported a total of $16 billion investment banking revenue for 2016—breaking the previous record of $15.8 billion, set in 2010. This growth was driven by heightened capital markets activity in China, where investment banking revenue surged to an all-time high of $8.8 billion. At the top of the heap was CITIC Securities of China, which snags our award for Best Investment Bank in Asia-Pacific. All told, CITIC raked in $523 million in revenue from its investment banking services in China—more than any other bank in the world’s most populous nation—last year.

Our award for Best Investment Bank in Latin America goes to Itaú BBA. Building on its legacy strength in mergers and acquisitions in its native Brazil, Itaú has shattered the myth that banks based in Spanish-speaking countries enjoy a natural advantage in South American countries other than Brazil, where the national language is Portuguese. Itaú successfully spread its wings across the region’s Spanish-speaking countries. In 2016, Itaú BBA dominated mergers and acquisitions in Latin America, commanding a higher market share than any other bank. The bank led some of the highest-profile deals south of the US-Mexican border, serving as financial advisor to Statoil on its $2.5 billion acquisition of Petrobras’s stake in its Carcará field. Another strong suit for Itaú BBA is equity; it raised $664 million for its clients in seven deals for a 6.4% share of the region’s equity capital market, according to Dealogic.

UPSTARTS AND START-UPS

In other emerging and frontier markets, investors were most likely to avoid the Middle East and Africa last year. Our award for Best Investment Bank in the Middle East goes to Samba Capital of Saudi Arabia, which distinguished itself on the stock market despite military conflict in the region by raising $471 million in a single equity deal that garnered a 13.9% share of the capital raised on the region’s troubled stock market last year—more than any other bank on record.

Our award for Best Investment Bank in Africa goes to Standard Bank of South Africa which, with branches and licensed banks scattered strategically across the continent, advised its clients on seven M&A deals that were valued at $7.9 billion last year. All told, Standard commanded an 11.9% equity market share in Africa—more than any other bank. Based in Johannesburg, South Africa, this 154-year-old bank controls its own balance sheets in 20 countries across Africa through its local entities, such as Stanbic Holdings in Kenya and Stanbic IBTC Bank in Nigeria. Off the continent, the bank has a strong partnership with Industrial and Commercial Bank of China, which in in turn owns 20% of the bank in South Africa and 60% of its subsidiary in the UK, That bank  has actually been renamed ICBC Standard Bank. The bank now has in-country advisory capabilities in China and the UK.

“We make sure we have a real brick-and-mortar presence on the ground, with balance sheets and the capacity to do corporate market transactions, in every single one of the markets that we are in,” says Bill Blackie, head of investment banking at Standard Bank in Johannesburg. These advantages helped Standard also pick up our award for Best in Emerging Markets. “Most of my clients are coming to the market for the first time,” he adds.

This year, investment bankers are eyeing emerging markets, where their next new corporate clients will emerge. “The most important thing to watch is the recovery of economies post-economic slump,” explains Blackie. “Those that have been most disciplined will recover quicker. That will be a good indicator of where it will be most attractive to invest going forward.”

It’s only fitting that we found our Best Up & Comer in China, where investment banks saw their revenue surge to an all-time high of $8.8 billion last year.

Guotai Junan Securities Co. of Shanghai advised Shanghai Electric Power on its acquisition of a 66.4% stake in K-Electric of Pakistan in a $1.8 billion deal last October. According to Dealogic, that deal represented a 5.6% share of the entire market for M&A in frontier markets last year.

Now it’s incumbent on Shanghai Electric, Guotai’s client, to secure the approval of local regulators, which will mean resolving a dispute that cropped up in February over $1.2 billion in fees that K-Electric allegedly owes two Pakistan government agencies.

However, it’s a Wall Street titan we honor for its unbeatable will to close one merger after another in some of the world’s most remote and least predictable countries. Best in Frontier Markets goes to Citi (which also won Best for Securitization). Citi advised Pampa Energia on its $1.1 billion acquisition of a 67.2% stake in Petrobras Argentina last May and Central Group of Companies on its $1.1 billion acquisition of hypermarket chain Big C Vietnam last April. All told, Citi advised clients on 11 M&A transactions that were valued at $6.4 billion—more than any other bank in frontier markets—last year.

That deal has since been held up as a model for project finance at a time when banks must hold more capital to satisfy Basel III and Basel IV requirements. At the same time, investors are jittery about volatile asset prices. This double bind is making it hard for dealmakers to convince banks to put more capital at risk and persuade investors that their investments will grow over time. It has also raised the cost of borrowing.

“Basel III and Basel IV are having a significant impact on the long-term project-finance market,” says Mark Bradshaw, a managing director at Macquarie Capital Europe, part of the National Grid consortium. “We are seeing the traditional project-finance lending banks pulling back on the capacity and size of underwrites and starting to raise margins significantly.”

The higher cost of funds is becoming painfully apparent in long-term infrastructure debt. In the six months last year when Macquarie was cobbling together funding for the largest private power plant in Europe, margins moved 25 points. Since the third quarter of last year, standard “vanilla” project-finance refinancing rates in the UK have moved 30 points. “We are looking to incorporate alternative lenders into funding solutions early in the process—and looking to the capital markets to fill the gap left by the project-finance lending banks,” says Bradshaw.

Investors are hungry for high quality, multibillion-dollar debt deals, as shown by Anheuser-Busch InBev Finance Inc. of Belgium’s success with two corporate bonds totaling more than $60 billion in 2016. Its $46 billion corporate bond issue in January 2016 was hailed as the largest on record; large bond issues were easier to trade than small ones as banks shied from debt capital market in response to capital requirements. Yet even that was not enough to satisfy investors, who placed more than $100 billion in orders. Since then, a passion for high-quality corporate debt has defined the global bond market.

That’s precisely what infrastructure dealmakers are hoping to capitalize on. “This will be an interesting period, with public bonds and ratings agencies called into project-finance capital,” says Bradshaw. “We are expecting a very buoyant and busy 2017 in the infrastructure space.”

Investors are so keen they’re willing to wait for a payoff. Raising $7.4 billion, Postal Savings Bank of China (PSBC) was the world’s largest IPO since Alibaba’s $25 billion in 2014, but share performance since then has been limp. However, nearly 80% of the shares were snapped up by deep-pocketed “cornerstone” investors who can’t sell for at least six months and will likely wait longer for robust returns; China is a long-term game.

AT&T’s $85.4 billion acquisition of Time Warner offers the company advantages of vertical integration, but could easily have been scuttled due to antitrust concerns. The telecom/media marriage was just approved by the European Commission on March 15, however, and looks set to win approval from the US Department of Justice under president Trump, as well.

While the Fed is expected to raise US rates again this year, other developed countries are expected to plumb historic lows. The Bank of Japan is imposing -0.1% interest on some excess reserves. Developing markets are likewise scattered: rates up in China and Mexico, down in Russia and Brazil. The uncertainty is pushing up the forward premium that companies have to pay on foreign exchange markets.

No wonder global investment banks are reporting a steep rise in demand for interest-rate derivatives. At Societe Generale, named this year’s global Best in Interest -Rate Derivatives, sales of these products grew substantially in 2016, making them the biggest contributor to a 42% increase in revenues from fixed income, currencies and commodities trading during the third quarter of last year. Dealers at Societe Generale, which also won the award for Best in Equity Derivatives, receive high marks from corporate clients for a faster-than-average response time.

“Clients need to be mindful of changes in the rates’ market dynamics,” says Antoine Jacquemin, deputy head of Western-Europe foreign exchange and interest-rate derivatives corporate sales at Societe Generale, in Paris. “A number of corporates have adjusted their risk management policy to take into account the current situation.” After the UK voted to secede from the EU in June, many of SG’s clients adjusted their positions in interest-rate derivatives and credit derivatives to reflect the Bank of England’s low-rate stance.

“We expect rates in developed countries to continue to follow a different path as US rates move higher,” says Jacquemin.

The interest-rate scatterplot also spells uncertainty for credit derivatives that are known to be harder to trade at times when asset prices are volatile. That’s why Credit Suisse wins kudos from its clients for keeping its house in order. Looking ahead at Basel III capital requirements that will take effect in 2019, the Swiss bank moved about $5 billion in leverage off its balance sheet by selling an entire portfolio of credit default swaps that were not benchmarked to traded indexes to Citi last year. This year, Credit Suisse, our awardee for Best in Credit Derivatives, is helping its corporate clients contend with new rules on derivatives trading. These rules took effect on March 1, as the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (BCBS-IOSCO) had mandated. The rules govern margins that reflect daily changes in market value in bilateral trades, which are done over the counter; and do not go through clearing- houses, and they can raise the cost of such trades. Now Credit Suisse routinely shows its clients how much it will cost to execute trades in credit options through a clearinghouse rather than trading bilaterally with counterparties­—and the impact on their balance sheets.

“It’s our view that, even though there are costs associated with a clearinghouse, the result is ultimately better for the health of the market and its participants,” says Joel Kent, head of Americas flow credit derivatives at Credit Suisse.

More trades are expected to go through clearinghouses this year, which will make trading in credit options more transparent, more standardized and, according to Kent, ultimately more appealing. “As the market evolves toward clearing of options we can see increased demand in that space,” he says. If voluntary clearing becomes more common, he predicts, debt options pricing could reach the point where it becomes as transparent as an index.

Expectations for lower corporate taxes and an easing of regulatory pressure on the finance industry under President Donald Trump bode well for midsize regional banks and their commercial clients across the US. Lower corporate tax rates are expected to free up capital for small and medium-sized businesses to reinvest. And banks that were approaching $50 billion in assets may no longer need to merge with larger ones—or acquire smaller ones—to raise the capital required to meet the costs of compliance, according to Chris McGratty, an analyst who specializes in regional and community banks at investment bank Keefe Bruyette & Woods (KBW) in New York.

At the same time, it’s particularly timely, as midsize regional commercial banks are coming under tremendous pressure to make ends meet. Top-line revenue growth has been slow in recent years at commercial banks—and even stagnant at some, according to Boston Consulting Group (BCG)—as costs continue to rise because of inflation and compliance with the latest banking regulations under the international Basel III accord and the domestic Dodd-Frank financial reform law. Making matters worse, loan losses crept up in 2015 from near-zero lows a year earlier. Meanwhile, the larger national banks have been investing in online commercial banking products that attempt to emulate the “single point of service” model for which small and midsize clients have historically been willing to pay their regional banks a premium. Some clients have already voted with their feet.

“The call to action is increasing,” says Pieter van den Berg, a consultant at BCG who works with midsize banks in the US. “We are seeing banks in a large-scale transformation, changing the way they do business. There is more of a sense of urgency, as the client base has gotten more harsh.”

CONSOLIDATION SLOWS

In a glaring sign that transformation is a priority for regional banks, the industry’s once brisk pace of consolidation slowed last year, when about 240 mergers were reported. KBW had predicted more than 300 deals among banks that wanted to build up their scale to absorb rising compliance costs as their respective asset bases grew to the critical level of $50 billion, the point at which the Fed would designate them systemically important financial institutions (SIFIs). One reason for the slowdown was that, as of 2016, fewer banks were still willing to acquire other banks and leave them alone without sacking their staff or consolidating their operations.

Consolidation has led some regional banks to expand outside the home region, where they have spread their risk by making small loans to small companies in a diverse array of industries from manufacturing to agriculture to scrap metal—some of which thrive in cyclical downturns while others suffer. One bank that is eagerly expanding outside its home base is UMB Financial Corporation, which has long kept a diverse corporate portfolio of small and medium-sized clients in different industries in its native Kansas City, Missouri. UMB has been moving across the southwest US since 2015, when UMB acquired Marquette Financial Companies. The acquisition stepped up UMB’s profile in two of the region’s biggest corporate banking markets—the cities of Phoenix and Scottsdale in Arizona, and Dallas/Fort Worth in Texas. As part of the deal, the bank picked up various specialty businesses elsewhere in the US.

“As we look ahead, we will continue to be opportunistic about acquisitions and expansions,” says Mike Hagedorn, vice chairman of UMB Financial and president and CEO of UMB Bank.

Another strategy is to specialize more deeply.  SunTrust Bank, for example, historically lent to small and medium-sized companies in industries concentrated around its headquarters in Atlanta, Georgia. These are mainly logistics businesses operating in the ports of Georgia and neighboring states; life sciences and other technology research companies in the Research Triangle of North Carolina; and nursing homes and retirement centers in Florida and elsewhere in the Southeast. Over the last couple of years, SunTrust has hired specialists to raise money for these clients on the stock and bond markets. Last year, the bank stepped up its game in biotechnology, hiring professionals in equity research, equity origination, M&A advisory and investment banking.

“These specialists help identify ways that SunTrust services and products can provide support to the growth strategies of those companies,” says Mark Chancy, wholesale banking executive at SunTrust.

On December 16, SunTrust took a great leap into commercial real estate, an industry in which the bank had only about 8% of its total loans outstanding, when it closed on its acquisition of Pillar Financial, a real estate finance company headquartered in New York. The Pillar deal included agency licenses for Fannie Mae, Freddie Mac and the Federal Housing Administration, making SunTrust an agency lender overnight. The deal also included a lending business with specialty teams focused in areas such as multifamily apartment buildings, healthcare properties, senior housing and manufactured housing. It even included a commercial real estate investor services business and a mortgage brokerage in Chicago. Now the bank has filled a gap that had prevented it from serving an important client in the multifamily apartment business, Chancy says.

GEOPOLITICAL SURPRISES

There are risks to these strategies, of course. Four years before the UK voted last summer to secede from the European Union, Silicon Valley Bank of Santa Clara, California, opened a London branch partly as a gateway to continental Europe. Some expect the UK to become more economically isolated by the cancellation of “passporting” rules that have allowed EU nationals to work and travel in the UK. But Silicon Valley Bank, which provides technology entrepreneurs with banking services, still considers the UK, which has a concentration of fintech companies, attractive. For its next international expansion, Silicon Valley Bank is looking north on its home continent. “We have been very interested in Canada. We have offices in Boston and Seattle, and that is a natural area for us to expand into,” says Daniel Drancik, the bank’s head of global treasury, trade and payments advisory.

On the regulatory front, however, relief may be in sight. A major source of headaches for midsize banks—the cost of compliance—could fall. This process was set in motion May 2015 with the “Shelby Bill,” a deregulatory measure sponsored by Senate Committee on Banking, Housing and Urban Affairs chairman Richard Shelby that would allow banks to remain undesignated as SIFIs until they accumulate $500 billion in assets, up from $50 billion now. “What we have heard from president Trump is that he has a vision to significantly reduce regulation, which could financially benefit many sectors from finance to energy,” says UMB’s Hagedorn. During the first two months after the election, financial stocks were up 18%, which Hagedorn regards as “sending the message” that banks will benefit from a lighter regulatory burden.

BNP Paribas, a prominent European universal bank, has followed its clients wherever their business has taken them around the world. The Paris-based bank is now present in 75 countries and has continued to gain market share in Europe as other banks have faltered in the low-growth, low-interest-rate environment. BNP Paribas CIB, its corporate and institutional banking business, has become the leading cash management and transaction services provider in Western Europe. It also is a top provider of structured lending and offers classic investment banking services. BNP Paribas is financial adviser to Anheuser-Busch InBev on its planned acquisition of SABMiller. The bank has selectively expanded its CIB activities in the US and plans to form an intermediate holding company there, including Bank of the West, its key US asset. The French bank has been a bookrunner on benchmark debt issues for leading US companies, such as IBM and Coca-Cola. In Asia the bank has more than 100 specialists in equity capital markets and cross-border mergers and acquisitions. BNP Paribas is one of the leading international banks in the Middle East. It offers Islamic services through BNP Paribas Najmah, based in Bahrain. CIB South Africa is the bank’s hub for corporate banking activities in Southern Africa, complemented by securities services operations in Cape Town.

—Jean-Laurent Bonnafé, CEO

www.bnpparibas.com

Royal Bank of Canada posted record net income of C$2.9 billion (US$2.2 billion) for its third quarter, ended July 31, up 17% from a year earlier, and increased its quarterly dividend. RBC, the largest Canadian lender, is keeping a close watch on Canada’s overheating housing sector, particularly in Vancouver and Toronto, but with its conservative lending practices, the bank says it is well prepared for any pullback in home prices. RBC lowered its provisions for credit losses related to the oil and gas sector by 31% in the May-July quarter, compared with the same period a year earlier. The bank has about 15% of its loan portfolio in the oil-dependent province of Alberta, where it makes auto and credit card loans.

J.D. Power’s 2016 Canadian retail banking satisfaction study ranked RBC highest in overall consumer satisfaction among Canada’s biggest banks. The ranking was based on these seven factors: product, self-service, personal service, facilities, communication, financial adviser and problem resolution.

RBC has operations in Canada and 36 other countries, including 17 countries in the Caribbean. Last year RBC agreed to buy Los Angeles-based City National for $5.4 billion to enhance its US franchise.

—Dave McKay, president and CEO

www.rbc.com

Riyadh-based Samba Financial Group, with assets of $63 billion, is a highly regarded Saudi Arabian financial institution in the Middle East region and internationally. It offers a wide range of shariah-compliant products and services and is renowned for its risk management expertise. It also offers well-received Islamic products and services across consumer, corporate, institutional, treasury, private banking, capital markets, investment banking and asset management. In 2015, Samba was involved in complex shariah-compliant real estate transactions exceeding $3.6 billion in overall transaction value. It has very good structuring skills with regard to specialized real estate products.

—Eisa Al-Eisa, chairman

www.samba.com

The Industrial and Commercial Bank of China is the largest commercial bank in China, the world’s largest emerging market. It is also the world’s largest bank by deposits and loans and second-largest by market capitalization. ICBC is number one in the world in terms of Tier 1 capital. The bank operates in 42 countries and has more than 400 overseas branches.

ICBC was the first bank to introduce cash management services in China and continues to lead in this area. It is the leading investment bank in China and the biggest domestic bond arranger. ICBC is also the largest retail bank and the largest issuer of credit cards in China, as well as the largest private bank. ICBC is the largest custodian bank in China, the largest electronic bank, the largest asset management bank and the largest settlement bank. Despite its size, ICBC is also innovative and holds more technology patents than any other Chinese bank.

—Yi Huiman, chairman

www.icbc.com.cn

Qatar National Bank’s strategy of focusing on high-growth markets has given it a growing footprint in frontier markets, even as Qatar itself has been upgraded by MSCI to emerging market status. QNB’s purchase in 2014 of a 23.5% stake in Ecobank made the Doha-based bank the largest shareholder in the trans-African financial institution.

Moody’s Investors Service cautioned earlier this year that QNB’s foreign expansion into riskier jurisdictions is increasing the downside risks for the bank’s asset quality. Still, Moody’s affirmed QNB’s Aa3 deposit ratings with a stable outlook. It said Qatar’s resilient operating environment and QNB’s strong links with the Qatari government give it access to a large volume of low-risk lending opportunities and underpin its high profitability. QNB recently obtained the approval of India’s regulatory authorities to conduct operations in that country, moving it toward its goal of becoming a global bank by 2030.

—Ali Ahmed Al-Kuwari, group CEO

www.qnb.com

With $6.2 trillion in assets under custody, this Chicago-based bank has heft, yet thanks to its client-centric culture, Northern Trust is nimble enough to target lucrative markets around the world, serving pension funds in Nordic countries as well as the sovereign-wealth Future Fund of Australia. Stemming from its legacy as a private bank, Northern Trust maintains a high level of “personal touch” with its clients, providing them with customer relationship officers who answer questions about every aspect of its services. In the Middle East, the bank opened new offices in Riyadh, Saudi Arabia, and Abu Dhabi, United Arab Emirates, in 2013.

—Frederick Waddell, chairman and CEO

www.northerntrust.com

Standard Chartered Bank offers direct custody access to 40 markets across Asia, Africa and the Middle East, giving it the most extensive proprietary network in these regions. In 2015 the bank finished implementing its new integrated custody platform in Malaysia, China and Thailand. The platform’s “single touch” architecture gives clients seamless access to all of its subcustody markets through a single window. An event-driven processing model delivers dynamic, intraday transactional data and reporting updates to clients, replacing batched updates.

—Margaret Harwood-Jones, global head of securities services

www.sc.com

In 2015, UBS raised $56.5 billion in bonds, plus another $14 billion in secured debt, for financial institutions alone. In equity UBS focused on customers like Piraeus Bank of Greece, for which it raised €4.9 billion ($5.5 billion). UBS raised $53.4 billion in 267 equity deals, for a 5.9% worldwide market share. Shareholders price UBS at a book value of 1.0—well above that of Citi or Bank of America.

—Andrea Orcel, president, investment bank

www.ubs.com

Citi’s commitment to the treasury and trade solutions (TTS) business is supported at the highest level, with CEO Michael Corbat calling it “the backbone of our global network.” Citi Innovation Labs in Singapore and Dublin are one key to Citi’s success. They include a Client Collaboration Center, where Citi’s innovation specialists work with clients and regulators to transform banking processes, and a Client Experience Center for clients to try out new TTS services.

—Naveed Sultan, global head of TTS

www.citi.com

Citi TTS provides integrated cash management and trade finance services to multinational corporations worldwide. The bank does business in 160 countries (with trade finance experts on the ground in 96 of them) and 140 currencies.

Citi is one of the first global banks to offer corporate clients in Latin America host-to-host automated services. In North America, offerings range from simple trade finance loans to complex distribution financing structures. In Africa, crucial relationships with export credit agencies and multilateral agencies allow Citi to meet its customers’ capital spending needs and to customize supplier financing. Its cross-border trade hub in Singapore supports regional trade flows in the Asia-Pacific, where Citi is the largest US-based bank in terms of commercial letters of credit outstanding.

—Naveed Sultan, global head of TTS

www.citi.com

For a significant number of banks, supplier finance offerings are geared primarily toward large, credit-worthy buyers and the suppliers they have identified as wanting to assist with supply-chain finance programs. But BNP Paribas’s Global Trade Solutions business, including supplier finance, focuses on the needs of a wide range of buyers, suppliers and distributor financing programs. One of the bank’s unique selling points is its inventory management business, Utexam Logistics, based in Dublin. Operated as a subsidiary of the bank, it can purchase inventory on behalf of a supplier and sell it back to them, providing liquidity much earlier in the supply chain—pre-shipment—than other supplier finance strategies, which tend to be post-shipment, based on buyer-approved invoices.

—Emmanuel Galzy, global head of supply chain management

www.bnpparibas.com

With its broad geographic presence and wide range of products, Citi has the world of foreign exchange covered better than any other bank. Its leading market share attests to the depth of its market expertise and advanced electronic trading platforms. Not only is Citi the biggest FX bank, but it also offers the best-quality service. With operations in 100 countries, including 68 emerging or frontier markets, Citi is one of the main global banks serving large, multinational corporations. From its renminbi cross-border sweeping structure to futures trading on its Velocity electronic execution platform, Citi is constantly upgrading its technology and offerings. Its Web-based CitiFX Pulse platform enables multinationals to track cash flow and balance-sheet exposure across their worldwide subsidiaries and to send supporting documentation online. Last year Citi sold its FX margin business, including its CitiFX Pro retail brokerage, to FXCM in the US and Saxo Bank overseas, as part of efforts to streamline its operations.

—James Bindler, global head of G10 FX (forex in 10 major currencies)

www.citi.com

Although currently under fire for apparently unethical retail practices, San Francisco based Wells Fargo has used its strong balance sheet and correspondent banking relationships to serve clients around the world without investing heavily in local operations in distant lands. Although most of its assets remain in the US, the bank now has more than 50 global offices, including branches in the Dubai International Financial Center as well as Beijing, Hong Kong, London, Seoul, Shanghai, Taipei, Tokyo and Toronto.

Long a leader in international trade finance, Wells Fargo is the largest import factor worldwide and the only bank to own a factoring company specializing in trade financing. Its supplier finance unit serves large corporations and their trading partners around the globe. Wells Fargo is one of the world’s largest providers of foreign exchange, treasury management and trade-processing services.

The bank’s revenue is balanced between net interest income and fee-based income. In the US, Wells Fargo is the leading bank in small business lending, agricultural lending and commercial real estate financing.

—John Stumpf, chairman and CEO

www.wellsfargo.com

ING retains its pole position in Western Europe after turning in a sparkling across-the-board performance in 2015—not only in its Benelux home market but in Poland as well. The bank’s underlying profitability improved sharply, with a 23.2% surge in net profit, to more than €4.2 billion ($4.8 billion). Core lending recorded net growth of €21.7 billion, or 4.2%, while the bank attracted a robust €25.1 billion net inflow of customer deposits. Group CEO Ralph Hamers notes that “in 2015 our retail customer base grew by over 1.4 million customers to 34.4 million at the year-end,” and “of this total, the number of customers selecting ING as their primary bank rose by almost 7%.” He highlights “significant progress on increasing the pace of innovation across the company,” including the Twyp app for peer-to-peer payments and the introduction of the Moje ING platform in Poland, adding that “we are determined to deliver on our promise of providing a differentiating and seamless client experience across the globe through new technologies and services.” The bank’s fully loaded common equity Tier 1 (CET1) ratio strengthened to 13.1% by the middle of 2016.

—Ralph Hamers, group CEO

www.ing.com

In a year marked by geopolitical tensions, market volatility and ultra-low interest rates, Nordea raised group operating profit in 2015 to €4.79 billion ($5.45 billion)—an increase of 7% over 2014, or 11% in local currencies. Lending margins were shaved, with net interest income down 7%, but fees and commissions rose 6%, and operating costs and net loan losses were significantly lower.

CEO Casper von Koskull comments: “Nordea has over the last decade delivered the most stable results in the Nordics, and last year our ROE [return on equity] of 12.3% was the highest since 2008. This strength and stability come from a diversified geographical exposure across eight home markets (including the Baltics) and a very broad product portfolio.

Digitalization has continued to be the main driver of change in retail banking, where we continuously develop new features and functionalities. Our wholesale banking business has secured a substantial lead-bank footprint in all the Nordic markets and number-one position overall, and our wealth management had the strongest financial result ever, as profits grew beyond €1 billion.” The group’s capital base again strengthened in 2016, with its CET1 ratio rising to 16.8% by midyear.

—Casper von Koskull, CEO

www.nordea.com

Erste Group turned around its massive €1.4 billion ($1.6 billion) loss in 2014 to report a net profit of €968.2 million in 2015. This was largely attributable to significantly lower risk costs, combined with a sharp decline in impairments to €729 million from more than €2 billion in 2014. The group’s nonperforming-loan ratio dropped to 7.1%, the lowest in five years, partly as a result of the successful sale of NPL portfolios in Croatia and Romania, but also because of a broad-based improvement in asset quality as economic growth accelerated to nearly 2% in Erste’s core Central and Eastern European markets. CEO Andreas Treichl says, “This confirmed the validity of our customer-centered business model and our strategy of positioning Erste Group as the leading retail bank in the EU’s eastern growth area.” Certainly, by focusing more tightly on Central Europe, Vienna-based Erste has avoided the heavy losses incurred by rival CEE banking franchises in Russia, Ukraine and the Balkans. Erste Group has continued to impress in the first half of 2016, with a net profit of €841.7 million, a core capital ratio of 13.3% and further improvement in asset quality.

—Andreas Treichl, CEO

www.erstegroup.com

Despite Latin America’s complex operating environment, BBVA remained profitable. In 2015 the bank posted an 8.7% rise in net attributable profit in South America, and 8.8% in Mexico. Market share of loans and deposits in Mexico was 23.4% and 23.2%, respectively, while in South America it was 10.4% for both categories. BBVA forged ahead with its goal of building the best digital bank of the 21st century, continuing a $2.5 billion technology investment plan throughout the region. Investments in social programs increased by 27% in Mexico and 7% in South America. Financial literacy remains its core corporate social responsibility focus globally.

—Francisco González, group executive chairman

www.bbva.com

Bank of China has always been the most international of China’s big banks. As conditions at home become more challenging, the bank is taking advantage of its international background to strengthen its presence in overseas markets and expand its trade finance and M&A advisory services. BOC has overseas branches in 46 countries and regions, accounting for 27% of total assets. Through this network, the bank is facilitating the investments of China’s largest companies, as they expand west as part of the country’s Belt and Road initiative. Last year BOC extended $28.6 billion in loans and other credits to such projects. BOC is also expanding south, with the help of its Hong Kong subsidiary. It has announced a plan to shift its assets in some Asean countries to BOCHK, effectively turning the subsidiary into a regional bank for Southeast Asia.

—Chen Siqing, vice chairman and president

www.boc.cn

Arab Bank’s global network of more than 600 branches on five continents is the most extensive of any bank in the Arab world. Founded in 1930, Arab Bank is the oldest financial institution in the region, with deep knowledge and relationships that enable it to serve niche markets in the Middle East and North Africa (MENA) better than any other bank.

—Nemeh Sabbagh, CEO

www.arabbank.com

Africa’s largest bank by assets, Standard Bank also does business under the Stanbic Bank brand. Based in South Africa, it is the leading liquidity provider for African currencies, operating in 20 countries across the continent and another dozen around the world—with a total of 1,221 branches and 8,815 ATMs. Normalized earnings for 2015 rose 34%, to $1.37 billion; assets increased 4%, to $128 billion. For the first six months of 2016, earnings rose 4.7%, to $808 million. While others are cutting back, Standard Bank remains focused on growth in Africa and its consumer markets, introducing innovative products such as contactless cards and mobile payment solutions. Standard Bank partnered with China’s leading mobile payment provider, WeChat Wallet, which will use the bank’s pan-African infrastructure to serve the continent. The bank also offers insurance and new risk products. Last year the bank disposed of a controlling interest in its British unit to Industrial and Commercial Bank of China, which also holds a 20% stake in the South African bank. Standard Bank expects to generate significant benefits from its strategic partnership with ICBC, and proceeds from the UK transaction will be used to strengthen its operations in Africa.

—Ben Kruger and Sim Tshabalala, group CEOs (joint)

www.standardbank.com

Serving a healthy client base in Boston’s fast-growing commercial real estate industry, Eastern Bank was ranked by a JD Power survey as the best bank in New England. In 2015, Eastern’s net income rose 14% to $62.6 million. The year ended with record levels of assets, deposits and loans—and the strongest credit quality in the bank’s 198-year history. At the end of the second quarter, Eastern’s assets surpassed $10 billion, a level that will trigger increased oversight from regulators.

—Richard Holbrook, chairman and CEO

www.easternbank.com

Based in Pittsburgh, Pennsylvania, PNC serves a super-regional client base spread across banking entities in 19 states and the District of Columbia. PNC holds more than 30 regional presidents responsible for delivering treasury management, real estate finance and other corporate banking products to Main Street. PNC reported net income of $989 million for the second quarter of 2016, up from $943 million in the first quarter, but below the $1.04 billion earned in the second quarter of 2015.

—William S. Demchak, chairman, president and CEO

www.pnc.com

Cincinnati, Ohio–based Fifth Third Bancorp has sought fast growth rates by opening new offices in New York, Boston, Philadelphia, Washington, Dallas, Houston and Los Angeles, says Kevin Lavender, managing director for large corporate and specialized lending at Fifth Third. While fulfilling its super-regional ambitions drove up expenses and net income was nearly flat in 2015, the bank still grew assets by 1.7%, to $140.1 billion. Second-quarter 2016 net income of $333 million was up 5.7% from $315 million in the second quarter of 2015.

—Greg D. Carmichael, president and CEO

www.53.com

Kansas City, Missouri–based Commerce Bancshares thinks of itself as a “super community bank” with branches in five states, says Kevin Barth, executive vice president for commercial lines of business. The bank spreads its risk by specializing in loans of less than $25 million to a wide range of local industries, from food processing to healthcare. Assets rose 1.7%, to $20.7 billion in 2015, the 47th year the bank raised regular cash dividends. Assets rose further to $24.7 billion as of June 30.

—David W. Kemper, chairman and CEO

www.commercebank.com

Based in Atlanta, SunTrust is expanding its investment banking and commercial banking arms nationwide. It is opening new branches across the country to serve its Southeast customers, who are spreading their wings in a wide range of industries, from financial technology to logistics to commercial real estate, says Mark Chancy, the bank’s wholesale banking executive. Assets were flat in 2015, at $190.8 billion, but rose to $199.1 billion as of June 30, 2016.

—William H. Rogers Jr, chairman and CEO

www.suntrust.com

Known for its expertise in the energy industry, Dallas, Texas–based Comerica maintains a branch network from Texas to Michigan and California to Florida. Total assets increased 3.9% in 2015, to $71.9 billion. Average loans grew by more than 4%, to $48.6 billion, mainly to companies in commercial real estate, technology and life sciences, and mortgage banks. Second quarter 2016 net income of $104 million was up from $60 million for the first quarter of 2016, but down from $135 million for the second quarter of 2015.

—Ralph W. Babb Jr, chairman and CEO

www.comerica.com

Based in Salt Lake City, Utah, Zions Bancorp spent much of 2015 consolidating charters among the networks of community banks it has acquired to form a super-regional bank in Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington and Wyoming, says James Abbott, director of investor relations at Zions.

Total assets grew 4% last year, to $60 billion. Second–quarter 2016 earnings of $91 million were up from $79 million for the first quarter of 2016, and compared to a loss of $1.1 million for the second quarter of 2015.

—Harris H. Simmons, chairman and CEO

www.zionsbancorp.com

San Francisco–based First Republic boosted its assets by a formidable 21% in 2015, to $59 billion, partly thanks to a 6.7% increase in loans to commercial businesses. Assets rose further to $64.7 billion as of June 30. The bank specializes in bridge loans for private equity and venture capital in Silicon Valley. First Republic has been run by management since a management buyout from Bank of America in 2010. Second-quarter earnings of $165 million were up 25.6% from the same period a year earlier.

—James H. Herbert II, chairman and CEO

www.firstrepublic.com

Low interest rates, low oil prices and low economic growth rates pose a triple threat to the global financial system, but some banks are performing remarkably well and helping their clients succeed in a world fraught with political unrest and economic uncertainties. In this, our 23rd annual survey, Global Finance selects the best banks in 143 countries and eight regions of the world. We also identify the best global banks in various service categories.

While US banks are raking in record profits, expectations for bank earnings in Europe remain gloomy, according to Fitch Ratings. Prolongation of the low-growth, low-interest-rate environment threatens to tighten the squeeze on bank earnings, hampering capital-raising efforts by some, the rating agency says in a recent report. “EU bank capital is in better shape than before the financial crisis, but nonperforming loans in aggregate remain elevated at three times the rate of US peers,” Fitch says.

Challenged asset quality in Southern Europe, coupled with a high reliance on bank financing rather than capital markets in Europe as a whole, contributes to the economic underperformance of the EU relative to the US, according to Fitch. It says that of the core EU countries, the problem is most acute in Italy, where nonperforming loans have risen to almost 20% of total loans outstanding.

The Asia-Pacific region has accounted for nearly half of global banking profits each year since 2009 but is now facing a powerful storm that could slash bank earnings dramatically in the next five years, according to global consultancy McKinsey, which analyzed 328 banks in the region. The economic slowdown in Asia-Pacific, along with technology disruption to the banking sector and weak balance sheets, could “cripple return on equity” by 2018, McKinsey says. Slower growth in lending and surging loan defaults lifted stressed assets in China, India, Indonesia and Japan to nearly $400 billion last year. The double-digit profit growth posted by banks in the region in the past five years will shrink to about 4% annually in the next five years, McKinsey says.

The increasing volume of nonperforming loans is putting added stress on banks, as interest-coverage ratios, a measure of how easily companies can pay interest expenses, are declining at large companies throughout the region, especially those in China and India, the report says.

“Our analysis indicates that by 2020, banks in Asia need to raise $400 billion to $600 billion in additional capital to cover losses from nonperforming loans while maintaining capital-adequacy ratios,” McKinsey says.

China now has four of the five largest banks in the world, according to S&P Global Market Intelligence’s latest ranking of banks by assets converted to dollars. Many of China’s big state-owned banks already have announced that their profits will continue to be pressured in the second half of 2016, as margins narrow and bad loans increase in a slowing economy.

Meanwhile, conventional banking in Asia is under attack from start-up technology companies offering financial products such as payment systems and lending platforms and by established companies from outside the industry, such as Alibaba and Tencent Holdings, according to the McKinsey report. It advises Asian banks to build up their own digital capabilities quickly. “In surveys, banking customers in Asia-Pacific frequently list limited digital offerings and unsatisfactory service as major sources of frustration,” the report says.

The US banking system appears to be relatively healthy, compared with most other systems around the world. Eight years after the financial crisis, the Federal Deposit Insurance Corporation (FDIC) says US banks’ earnings in the second quarter of 2016 rose 1.4% from a year earlier, to a record $43.6 billion, as growth in lending produced higher interest income, despite low interest rates. Some 60% of banks reported higher earnings, while only 4.5% were unprofitable.

FDIC chairman Martin Gruenberg cautions, however, that US banks are still operating in a challenging environment. The impact of low oil prices on energy companies, for example, has led some banks to post higher losses on commercial and industrial loans. Nonetheless, overall lending in the second quarter grew by 2%, to $181.9 billion, with the largest increases coming in home mortgages, other real estate loans and credit cards.

The number of banks on the FDIC’s problem list fell to 147 from 165 in the first quarter, and was the lowest in eight years. A decline in bank failures has enabled the deposit insurance fund to grow to $77.9 billion as of the end of June.

Banks in Europe also are making a growing number of new loans. The European Central Bank’s July 2016 bank lending survey, covering the second quarter, showed a further net easing of credit standards on loans to businesses in the euro area. Competitive pressure remained the main factor driving this easing, with a narrowing of margins, the ECB says.

Although net demand for loans continued to increase across all loan categories, a rise in mergers and acquisitions was the main contributing factor, followed by loans for inventories and working capital, and demand caused by the low level of interest rates.

With regard to the likely impact of ongoing regulatory or supervisory changes, euro area banks continued to adjust in the first half of 2016 by further strengthening their capital positions and reducing their risk-weighted assets, with the reduction mainly owing to a decline in riskier loans, the ECB says.

Bronka Rzepkowski, lead global strategist at Oxford Economics, says it is still too soon to become optimistic about European banks. In a note to clients, she says expectations for 2016 earnings at euro area banks have taken a turn for the worse, and analysts now expect them to decline by about 20%.

Following the June UK referendum on leaving the EU, Fitch Ratings says, bouts of market volatility refocused investor attention on three key challenges for European banks: profitability, asset quality and capitalization levels.

“The impact of Brexit is expected to be broadly negative for UK banks,” Fitch says. However, it adds that there are no immediate credit-rating implications on banks rated by Fitch, “as they are resilient to a moderate deterioration in the operating environment at current ratings levels.”

In emerging markets, excess capacity is being unwound, especially in commodity-related sectors, through sharp reductions in capital spending, the International Monetary Fund says in its latest global financial stability report. High private debt burdens reinforce risks to sovereign balance sheets, credit markets and banks, the IMF says.

With this survey, Global Finance recognizes the banks that are best placed to help their clients successfully navigate a world in flux. The listing includes the best global corporate bank, the best consumer bank and the best banks worldwide for emerging markets, frontier markets and subcustody services, which are being announced here for the first time, as well as previously announced awards for Islamic finance, global custody, investment banking, cash management, trade finance and foreign exchange.

The winners are not necessarily the biggest but rather the best banks—those with the qualities that corporations and individuals should look for when choosing a bank. These banks offer superior service, the most effective risk management and the best products.

We selected the winners based on performance over the past year, as well as subjective criteria, including reputation and management excellence. Global Finance made the selections after extensive consultations with bankers, corporate financial executives and analysts worldwide.

Global Finance: What are the drivers of change in the securities services industry?

Samir Pandiri: Regulation is one channel that is driving change. Clients are really having to think hard about how to deal with regulatory [changes]—Know Your Customer (KYC), bank secrecy laws, the tax harmonization laws—that are kicking in. What the regulators want is to have an open, transparent system so that they know what the service providers are doing and how people are consuming their services. It really is an effort to increase transparency of all of the market participants.

GF: How are regulators driving change?

Pandiri: Almost a quarter of our technology spending is related to regulatory change and regulatory enablement. The challenge is to get everyone on board so we don’t have to reinvent the wheel five or six times.

GF: What other impact is technology making on securities services?

Pandiri: Historically, if you were a large service provider, if you had market share, you had barriers to entry [for competitors]. But nowadays, there are lots of different technology avenues and disruptors that can come into any industry, including our industry. Kids who come out of school today want to work for Google or Yahoo. You need to have a different model if you are going to attract talent and bring in people who are really capable. When you develop technologies that are interesting and relevant, you just have a much deeper relationship with your clients.

GF: Do securities services providers need to build up economies of scale? Cut costs?

Pandiri: You just have to become more automated and efficient, and also grow market share. Unless you are one of the top three or five providers, you are not really going to have the scale to compete on a global basis, especially when regulatory change is so intense. People just won’t have the capital to invest in the business. That means you have to continue to grow your market share. Believe it or not, there is still lots of share to be had. And by the way, there’s lots and lots of consolidation in the industry. So there is an opportunity to continue to grow share.

GF: Is M&A the only growth path in this industry?

Pandiri: You can come at it from a low-price “let me buy market share” strategy. But the more value you can create in the value chain for your clients, the more market share you’re going to get. At the end of the day, for clients, whether they are corporate treasurers or CEOs, it is really how we are helping them in other ways that will be important: helping them cope with regulation, giving them the latest technology to get their data, helping them manage their business in a more timely manner, giving them the ability to invest in other products and services, and helping them reconstruct or solidify their business models so they can focus on the things that are really important. And for the things that are not, they can have a partner like BNY to help them.

Global Finance: Why are corporate clients seeking collateral management services?

Michael Albanese: Given the importance of collateral as a risk management tool, institutions increasingly look to a trusted agent to help them optimize their collateral inventory and deploy it in a capital-efficient and cost-effective way. The heightened use of collateral and its greater complexity have driven demand for a partner with significant expertise in managing collateral and margin obligations across a variety of structures.

GF: What specific features do they ask for?

Albanese: Institutions are looking for intraday reporting, access to local and global markets, the ability to substitute assets for other eligible assets (especially as demand for high-quality collateral increases), and complex and customizable collateral optimization capabilities.

GF: What are the biggest challenges for collateral managers these days?

Albanese: For the last eight years, a heightened focus on collateral has meant constant evolution for collateral agents. More transactions require collateral, regulatory change continues to take effect, and the focus on intraday access to information and sophisticated allocation and optimization tools available across markets means that collateral agents need to continually innovate.

GF: How are collateral managers innovating?

Albanese: A successful collateral manager needs to provide the counterparties with an operating model and infrastructure that is flexible and supports innovation. These include deploying collateral globally, regardless of where it’s held; adapting tri-party structures to create opportunities for other types of transactions beyond traditional repo and securities lending; and tailoring the tri-party model to work in onshore markets such as Japan and Korea, where the use of collateral and independence of collateral agents are increasingly valued.