A Dutch perspective on the 2022 banking and capital markets outlook

A promising outlook for Dutch banks

Banks are at a make-or-break moment. The report reveals that the global economy is showing the strongest post-recession growth in 80 years. For the Netherlands, the outlook is promising as well. New lockdowns might slow down recovery and growth a little, but the Dutch economy will remain versatile enough to cope. In fact, according to CPB (Bureau for Economic Policy Analysis), Dutch GDP is expected to grow by 3.5% in 2022. Inflation has reared its ugly head in the Netherlands: approximately 2%, which is higher than in recent years. Still, compared to earlier eras of inflation, or the current inflation rate in the US, the situation is not so bad and probably only temporary, as logistic issues are starting to resolve and prices of raw materials and interest rates are stabilising.

Stronger focus on cost management

However, banking margins globally – including the Netherlands – are expected to remain under pressure, resulting in a stronger focus on cost management. In 2020, the COVID-19 pandemic, caused a severe decline in banking profits, showing a decrease in RoE from an average of 8% to less than 5% amongst the large Dutch banks. And even though profitability improved in 2021, the net interest income – which is the most important source of income – is still under pressure from low interest rates. Yet financial prospects are generally positive and it is possible to realize RoE of 5 - 10% in the current market circumstances, according to a recent DNB scenario study.

Challenges and opportunities

There are a number of challenges and opportunities facing banks (see below) and the window for decisive action is closing soon. Now more than ever, banks should be bold and aggressive in orchestrating change at the pace and scale that will drive results.

Talent
For instance, when it comes to HR, banking leaders all around the world, including the Netherlands, are under enormous pressure to develop an agile and modernised workforce to support a product-driven and customer-centric operating model. What makes it even more challenging is the escalating war for talent, the new/hybrid way of working, and the need for upskilling in technical areas such as cybersecurity, artificial intelligence and cloud engineering.

Marketing, brand promise and ESG
Digitalisation has definitely impacted consumer behaviour and needs. Banks must respond to these needs – in fact, customers are increasingly expecting them to clearly articulate their purpose. Especially in the field of ESG (Environmental, Social and Governance). In the Netherlands, the three large banks have incorporated their purpose into their brand promise, from ‘banking for better for generations to come, ‘growing a better world together' and ‘banking for food’ to ‘empowering people to stay a step ahead in life and in business’. The next step should be to further translate this into visible action towards the consumer.

End-to-end in technology, operations and finance
Ask any CEO what they need to do to have a leg up in the marketplace, and the answer will most likely be modernising the infrastructure. Until now, banks have very much focused on tech-first investments vs. taking a more business and solution perspective. This is an inevitable shift in focus in order to realise sustainable solutions with an organisation-wide impact. A central cloud approach plays a crucial role here. From an Operations and Finance perspective, what stands out most is the focus on end-to-end processes and digitalisation. This will greatly enhance resilience-by-design. For all three disciplines, a more strategic and holistic business perspective is required for an overall digital transformation.

Risk & compliance, cyber risk and financial crime
In some ways, this is also the case for risk & compliance and the approach towards cyber risk and financial crime. These disciplines have often been treated as separate issues. Security by design, centrally driven, is key to boosting resilience and agility while embedding security. Another important aspect is the empowerment of the first line of defence. People in the first line should be encouraged to focus on emerging risks, anticipate and have tools in place, so they can be proactive instead of reactive.

Pursuing scale with M&A
When it comes to M&A, the focus in the Netherlands is on collaboration – e.g. cross-industry joint ventures – rather than on buying and selling. The result is similar though: more synergy, more standardisation, and opportunities to simplify processes. Also, we have seen alternatives that enable scaling in product- and system rationalisation efforts. A number of recent transformations in this space have resulted in a reduction of cost and complexity, and hence facilitate the transformation to a digital offering as well as simplify the implementation of new rules and regulations.

Digital assets
Digital assets (mainly cryptocurrencies) are all over the news. For the Dutch market, the major questions are: What should be our strategy concerning cryptocurrencies (are we going into that market or not), and what is our role in terms of more accurate regulation?

The future of fintechs
As a final challenge and opportunity, we would like to mention fintechs. What is key for Dutch banks is the level of maturity that these companies have already reached, and in what direction they are developing. The topic is discussed in more detail in our report.

2022 banking and capital markets outlook

The “2022 Banking and Capital Markets Outlook” is based on a global Deloitte survey (in July and August 2021) among 400 senior banking and capital markets executives from North America, Europe, and Asia-Pacific. They were asked to share their opinions on how their organisations have adapted to the impact of the pandemic on their workforce, operations, technology, and culture, and about their investment priorities and anticipated structural changes in 2022, as they pivot from recovery to future success.