The global banking sector is entering 2025 amid a landscape of uncertainty and opportunity. The International Monetary Fund (IMF) projects global economic growth of 3.3% highlights cautious optimism, yet challenges such as moderating growth in China, persistent inflation in major economies, and uneven recoveries in emerging markets demand attention. At the heart of the industry’s transformation are geopolitical tensions, sustainability goals and the ever-evolving role of technology.

Economic headwinds and regional resilience

The global economy is set to grow at 3.3% in 2025, yet banks face a tough operating environment with uneven recoveries and persistent fiscal pressures in various regions. In China, where growth is expected to slow to 4.6%, the country is undergoing a significant economic transition. Alicia García-Herrero, chief economist for Asia Pacific at Natixis, explained, “China is moving away from real estate towards high-tech and green manufacturing sectors. This double transition also involves a shift from shadow banking to formal debt structures, including local government financial vehicles being recognised as official debt.”

This transformation presents both challenges and opportunities for the banking sector. Chinese banks, García-Herrero noted, will be occupied with restructuring local government debt, a task that could impact outbound investments. Similarly, John Gong, vice president of research and strategy at the University of International Business and Economics, observed that “China’s shift towards domestic consumption and the central government’s capacity to raise debt can offset slowing export growth, but inflationary pressures may emerge as a significant challenge.”

In the Middle East, where oil remains a key economic driver, the situation differs. Deepak Mehra, chief economist at Commercial Bank of Dubai, highlighted the region’s resilience, supported by pegged currencies and diversified growth initiatives. “Our economies benefit from vibrant infrastructure investment and lower debt-to-GDP (gross domestic product) ratios, which provide systemic stability,” said Mehra. With inflation under control and robust domestic growth, banks in the region are strengthening their asset-liability management to take advantage of higher interest rates.

ASEAN economies, meanwhile, face a delicate balance between inflation and growth moderation. Suan Teck Kin, executive director of global economics and markets research at United Overseas Bank (UOB), noted, “Inflation in Southeast Asia has eased significantly compared to two years ago, and growth remains manageable at around 5% in 2025.” Banks in the region are playing a crucial role in supporting intra-regional trade, which accounts for 20% of ASEAN’s total trade, through trade financing and other initiatives.

Geopolitical uncertainties and their impact on banking

Geopolitical tensions are expected to intensify in 2025, creating ripple effects across the global banking sector. The return of Donald Trump to the US presidency, coupled with Xi Jinping’s continued assertion of China’s regional dominance, has heightened concerns about trade wars and shifting alliances. In this complex landscape, banks must navigate the risks while finding ways to foster resilience and growth.

Gong believes the immediate impact on China may be less severe than anticipated. “Trump has a long list of priorities, and China might not be his first focus initially,” he said, adding that China’s role in global trade remains resilient despite potential tariffs. However, he warned that the internationalisation of the renminbi could face significant headwinds from US policies aimed at bolstering the dollar’s dominance.

For Asia Pacific economies, these geopolitical shifts complicate banking operations. García-Herrero noted that escalating trade tensions are likely to slow foreign direct investment (FDI) into the region. “Southeast Asia, particularly countries like Vietnam and Indonesia, may experience delays in investments due to the wait-and-see approach adopted by companies uncertain about US trade policies,” she explained.

In the Middle East, however, the picture is different. Mehra observed that while global trade dynamics are shifting, the region’s focus on infrastructure investment and intra-regional trade acts as a buffer. “Massive projects in Saudi Arabia and the United Arab Emirates (UAE), such as the $1.2 trillion worth of developments in Saudi Arabia, are driving growth and ensuring stability,” Mehra said.

ASEAN economies often find themselves caught between major powers, but this positioning can also be an advantage. “Southeast Asia acts as a buffer and, in many ways, a region that both sides wish to court,” said Suan. He emphasised that banks play a critical role in supporting resilience through trade financing and facilitating intra-regional economic activity.

Despite the challenges, the consensus among experts is clear: geopolitical uncertainties demand agility, adaptability and robust strategies from banks. Strengthening local markets, diversifying portfolios, and leveraging regional cooperation are key to mitigating risks in an increasingly volatile world.

Trade realignment and banking opportunities

The global realignment of trade, driven by nearshoring and the China+1 strategy, is reshaping supply chains and creating new opportunities for banks, particularly in regions like ASEAN and the Middle East. This shift is not only redefining global economic connections but also positioning banks to play a crucial role in financing and enabling these transitions.

Southeast Asia has emerged as a major beneficiary of trade realignment. Vietnam and Indonesia, for instance, have seen significant increases in FDI, with ASEAN as a whole becoming the second-largest global destination for FDI, behind the US. “ASEAN attracted $226 billion in FDI in 2023, a 37% increase compared to pre-pandemic levels in 2019,” said Suan. He credited the region’s supply chain realignment and strong trade linkages as key factors.

Banks in ASEAN are capitalising on this trend by offering tailored trade financing solutions and advisory services. UOB, for example, has established FDI advisory units to assist companies relocating to the region, providing support in navigating regulatory landscapes and integrating into local supply chains. “This is not just about trade finance but also about enabling businesses to diversify risks and expand into lucrative markets within Southeast Asia,” Suan noted.

In the Middle East, diversification efforts are similarly transforming the trade landscape. Mehra highlighted the region’s investments in ports, railways and infrastructure as critical enablers of intra-regional trade and global connectivity. “Massive infrastructure projects, like Saudi Arabia’s Vision 2030 initiative, are fostering economic growth while creating opportunities for banks to fund and support these developments,” he said.

While these regions benefit from trade realignment, challenges remain. García-Herrero pointed out that uncertainty over US tariffs and geopolitical tensions could slow investment flows. However, she stressed that banks have a pivotal role in mitigating these risks. “By providing financing for infrastructure and trade projects, banks can support economic resilience and drive growth, even amid global uncertainties,” she said.

Trade realignment also underscores the importance of inter-regional cooperation and innovation in financing solutions. As Gong observed, “Chinese banks are following their clients into ASEAN, supporting trade and investment activities while contributing to local economies.” This trend exemplifies the interconnected nature of global banking in today’s shifting trade environment.

The future of sustainability in banking

Sustainability remains a crucial focus for the banking industry, even as economic and regulatory pressures challenge its momentum. Recent developments, such as major U.S. banks including JPMorgan and Goldman Sachs exiting the United Nations (UN)’s Net-Zero Banking Alliance, have raised concerns about the future of environmental, social, and governance (ESG) initiatives. Despite these setbacks, experts emphasise the need for banks to accelerate their green finance efforts.

In Southeast Asia, governments play a central role in driving sustainability goals, which in turn influence banking priorities. “Policies on electric vehicles and renewable energy are shaping how banks allocate resources,” said Suan. He highlighted examples such as Singapore’s plan to eliminate internal combustion engine vehicles by 2040 and Thailand’s ambition to achieve 100% zero-emission vehicle sales by 2035. “These objectives create clear opportunities for banks in green financing, particularly in areas like renewable energy projects and green building initiatives,” he noted.

The Middle East offers another compelling case of aligning sustainability with economic strategy. Mehra explained that environmental initiatives are no longer optional in the region but essential for survival. “In a desert environment, where water desalination and air conditioning are necessities, sustainable practices are critical,” he said. Projects such as Saudi Arabia’s Vision 2030 and the UAE’s Green Agenda demonstrate how governments are embedding sustainability into national development plans. “Banks in the Middle East are not just funding these projects but also leveraging technology to track and measure the impact of green investments,” Mehra added.

In developing economies, the challenge lies in balancing economic growth with sustainability. García-Herrero argued that these objectives are not contradictory but complementary. “Without a green strategy, developing countries face escalating costs from climate mitigation,” she said. García-Herrero called for stronger regulatory frameworks to incentivise banks to prioritise green lending, citing examples from the European Central Bank, which imposes higher costs on loans to polluting industries.

While challenges persist, such as stranded assets and regulatory constraints, sustainability remains a long-term imperative for the banking industry. By leveraging technology and fostering public-private collaboration, banks can align profitability with climate goals, ensuring resilience in a rapidly evolving financial landscape.

Technology as a catalyst for transformation

Technology continues to reshape the global banking landscape, offering both opportunities and challenges. From artificial intelligence (AI) to blockchain, the digital revolution is enabling innovation, improving efficiency, and enhancing customer experiences. At the same time, it presents challenges such as cybersecurity threats and the need for inclusive digital transformation.

The Middle East has embraced technology at a rapid pace, supported by progressive government policies. Mehra highlighted the region’s first-mover advantage in AI, driven by initiatives like the UAE’s Ministry of Artificial Intelligence, established in 2017. “Banks in the Middle East are leveraging AI not only for operational efficiency but also for decision-making, risk management, and fraud detection,” Mehra said. He noted that investments in AI are already delivering measurable returns, with automation driving cost reductions and competitive differentiation.

In Southeast Asia, the focus is on ensuring inclusivity while advancing digital transformation. Suan stressed the importance of balancing innovation with accessibility. “Banks must ensure that digital tools are widely available to staff and customers, while also safeguarding customer data and maintaining compliance,” he said. To achieve this, banks in the region are integrating large language models and AI-driven analytics into compliance, customer service, and operational workflows. Upskilling employees is another key priority to ensure they can adapt to the demands of digital transformation.

Asia Pacific’s booming fintech ecosystem also underscores the need for traditional banks to remain competitive. García-Herrero observed that banks have successfully retained their market position by adopting fintech solutions, particularly in areas like payments and data analytics. “The rise of AI is a positive development for banks, enabling them to reduce costs and enhance scalability,” she said. García-Herrero noted that many tasks previously dominated by fintechs can now be performed more efficiently by banks using AI, reinforcing their relevance in a competitive landscape.

The transformative potential of technology comes with the need for robust cybersecurity measures. As financial institutions adopt advanced technologies, ensuring data security and minimising cyber risks are top priorities. The integration of technology with strong governance frameworks will be crucial for banks to unlock the full potential of digital innovation while safeguarding trust.

Resilience, innovation and sustainability in 2025

The global banking sector in 2025 faces a complex landscape marked by economic challenges, geopolitical tensions and the demand for sustainability and technological transformation. Yet, it is also a year of significant opportunities. Regional insights reveal the diversity in responses and strategies, with Asia Pacific, the Middle East and ASEAN navigating their unique dynamics.

From China’s economic transition to ASEAN’s rise as a hub for trade and investment, banks are demonstrating resilience by adapting to shifting trends and diversifying their portfolios. In the Middle East, massive infrastructure investments and robust policies are driving growth and stability. Sustainability remains a pressing priority, with banks recognising the need to align profitability with environmental goals. Technology, meanwhile, is a powerful enabler of innovation, helping institutions address challenges like operational efficiency, cybersecurity and inclusivity.

The lessons are clear: banks must embrace agility, collaboration, and forward-thinking strategies to thrive in a rapidly evolving global environment. Whether through trade financing, green finance, or the adoption of advanced technologies, the industry is poised to redefine its role in supporting economic growth, fostering resilience and shaping a sustainable future.

As the industry moves forward, resilience, innovation, and sustainability will remain essential pillars for navigating the uncertainties of 2025 and beyond.

Invited guests include:

• Ronit Ghose, Global Head for Future of finance, Citi Global Insights
• Nikhil Sharma, Head of Growth, Onyx Digital Assets, Onyx by JP Morgan
• Benjamin Chodroff, Head of HSBC Lab, Innovation and Ventures, HSBC
• Hari Janakiraman, Head of Industry and Innovation, ANZ