This is where nCino's predictions for 2025 come in—offering a clear vision of the trends, innovations, and challenges set to redefine the industry. From harnessing AI-driven efficiencies to elevating customer experiences through smarter, seamless solutions, our forecasts will help you position your institution for long-term success. Join us as we explore the opportunities ahead and uncover how the right strategies can help you shape the future of banking.
1. Credit Risk Will Remain High, Making Balance Sheet Optimization a Key Focus
With global economic pressures mounting and consumer debt on the rise, financial forecasts predict a challenging landscape for credit risk in 2025. S&P Global anticipates credit losses to swell by 7%, reaching a staggering $850 billion; in addition, half of portfolio managers foresee a surge in default rates in the upcoming year, according to Pensions and Investments. In 2025, we predict the high delinquency rates on loans and credit cards will persist, making effective risk management and maintaining healthy relationships with customers more vital than ever. Striking a balance between loans and deposits will be a big part of that. Financial institutions will also focus on managing their balance sheets and maintaining a healthy balance between assets and liabilities, which can help them minimize losses and stay competitive, even in periods of economic volatility.
2. The Commercial Real Estate Market Will Continue to Face Challenges
The real estate market is forecasted to face substantial challenges throughout 2025. Several factors contribute to this prediction, including a significant downslide in commercial real estate, with the office sector being especially hard hit. This downturn has already begun to make an impact on asset quality. In addition, the vulnerability of the market is demonstrated in the high interest rates on renewing commercial real estate loans, which, in turn, amplifies the risk of defaults. In fact, American Banker reports that expected defaults on office properties have reached a peak unseen in decades. Furthermore, a primary risk that currently affects the industry's stability rating, which stands alarmingly at 80%, is an unexpected deterioration in the property sector. The US office and Chinese property developer sectors are the most susceptible to this risk, according to S&P Global. In 2025, financial institutions will need to monitor these trends, adapt quickly, and strategize effectively to navigate a challenging real estate market.
3. Intelligent Automation Will Be Leveraged for Efficiency
In 2025, we see artificial intelligence (AI) transitioning into a tool for process re-engineering, transforming complex multi-click tasks into simple one-click solutions. AI is no longer only about predictive and generative services, but also about intelligent automation and “Knowledge Efficiency, "which provides more effective ways to utilize your data and truly harness the power of low-risk, high-impact generative AI. The good news is that financial services are currently leading the AI adoption curve, with global spending projected to outpace other industries. The challenge is that many of these same banks are struggling with adoption and change management when it comes to AI integration. To reap the benefits of these exciting AI advancements, financial institutions will have to focus on building AI governance frameworks and adopting the necessary tools to tackle issues surrounding bias, transparency, and ethical AI usage.
4. FIs Will Focus on Relationship-Strengthening Experiences
As we navigate the evolving financial landscape, we predict that banks will continue to increase their focus on relationships, responding to the increasing demand for more personalized experiences from their clients, but continuing to invest heavily in technology. This investment is not limited to simple automation; it's intended to provide tailored experiences and nuanced financial advice customized to the individual needs of each client. With the surge in demand for digital solutions, it's evident that consumers are no longer content with one-size-fits-all services. They seek a highly personalized and engaging banking experience, and FIs must adopt the necessary technology to meet these evolving consumer demands and deliver a truly customized and powerful banking experience that will help them not only provide enhanced services, but also offer the opportunity to expand on existing ones.
5. Mortgages Will Start to Rebound
Many current homeowners are locked into lower mortgage rates (below 5%), which discourages them from selling their homes. This has resulted in a tight housing inventory, exacerbating affordability problems for potential buyers. In 2025, existing home sales are projected to remain low, with estimates suggesting only a 4% increase in sales from the near historic lows of 2024. Over the coming year, these challenges are expected to ease slightly, with mortgage rates predicted to stabilize around 6% to 6.8%, encouraging an increase in both purchase and refinance originations. Regulatory authorities and lenders are aligning strategies to lower overall loan costs, and as consumer and builder confidence rises, a projected 13% surge in housing starts is on the horizon. This resurgence in the market presents a golden opportunity for financial institutions who are prepared to take it.
No matter what happens in the year ahead, nCino will continue to serve as your ally, helping your financial institution transform challenges into opportunities and drive our industry toward a profitable and sustainable future.
