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IMF: Aging population, banks need new adaptation strategies

2024-09-06 13:11:52Biznes SHKRUAR NGA REDAKSIA VOX

IMF: Aging population, banks need new adaptation strategies

A growing number of nations, including Albania, are facing population decline and aging, so the International Monetary Fund, in a special study, warns the financial sector and especially banks that they must adapt their business plans in relation to major demographic changes.

Using UN data, the IMF notes that the populations of several countries, including Albania, Bulgaria, Serbia and the Republic of Korea, are projected to decline by more than 50% by the end of this century, the fastest pace globally.

China's population is projected to shrink by 46% by 2100, while other major economies, such as Italy, Spain and Germany, are also expected to experience major population reductions.

In contrast, the United States is projected to maintain a relatively youthful demographic profile, with its population expected to grow by 16% by 2100 compared to 2022.

The global trend of population aging has implications especially in the financial sector. The IMF says the specific impacts on banking systems require further exploration.

The aging population forces banks to review their operations, both for their assets and liabilities. An aging population reduces demand for credit, prompting banks to pursue alternative routes.

Population aging will reduce the supply of credit, in turn spurring investment in government bonds and other securities, diversification into new financial ventures, and cross-border expansion. The IMF points out that new banking strategies, driven by demographic developments, also carry new risks.

On the one hand, aging leads to a decrease in the average risk of solvency within the banking sector, which is attributed to the reduction of loans, which historically were the precursors of banking crises.

But new risks are associated with the channeling of excess deposits into unknown and potentially dangerous activities.

The IMF underlines that the presence of potential risks for banks in aging societies lays the urgent need for adaptation and vigilant policy making.

Aging occurs slowly and the gradual impact makes its effect invisible compared to the traditional factors affecting banks' solvency.

Large banks that have global reach may possess the resilience to deal with demographic changes, but smaller banks may face more obstacles in adapting to these demographic transformations.

Against the backdrop of demographic changes, where wealth passes from baby boomers to Generation Z, who may develop a different life cycle and financial perspective, banks must enter a new cycle of adaptation.

The financial market of Japan may be the example of the adaptation of financial markets to the aging of the population, notes the IMF study.


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