M&A outlook: a Dutch perspective


Key trends reshaping mergers and acquisitions in Dutch banking 

2022 banking and capital markets M&A outlook: A Dutch perspective 

Deloitte’s “2022 Banking and Capital Markets M&A Outlook” report reveals that in 2021 all major industry sectors witnessed growth on a level that outstripped expectations. The picture we see in the Netherlands is steady growth but on a smaller scale and far more specialised; growth has been restrained, in part, by its focus on the home market, strict regulations and the increasing cost of compliance. Regardless, we anticipate the upward trend will continue, providing profitable opportunities for M&A to capitalise on in 2022. Let’s look at the trends and drivers from a Dutch perspective.

Less diversification, more specialisation

Reassessing and reinvigorating portfolios is a key strategy: to expand core customer bases, banks are doubling down on portfolios in niches where they are really strong. For example, Siebe Groenveld, Partner of Deloitte Financial Advisory Services, told us, “ABN AMRO is looking to expand its SME and retail propositions and growth its private banking and corporate book, while Rabobank’s focus is on the expansion of its SME and retail lending side.”

Most are trying to outsource, or sell, their less typical portfolios, acknowledging they don’t have to be all things to all people. Banks are also pursuing portfolios to add more volume to their own platform or entering partnerships, for example, on the payment side.

2022 banking and capitcal markets M&A outlook

Drive towards efficiency

Many of the trends reflected in the Dutch banking sector are cost related, with a big drive towards efficiency and obtaining more skill within operations. One reason is to counter decreased margins due to the low-interest environment. The other reason is to offset the sizeable cost levels banks are facing from the regulatory Know your customer (KYC) and Customer Due Diligence (CDD) programs, and the resulting workloads.

In practical terms, all four major banks are analysing how to manage operations more efficiently and to lower costs with increased automation and outsourcing. They’re also looking to decrease the number of offices and employees.

The regulatory effect

Another key driver is the cost of compliance, steering most of the activity seen in the market. This focus on the protection and security of customers is admirable, but the stable regulatory system – one of the most stringent in Europe – can restrict the pace of M&A growth.

For example, there is very tight regulation of consumer finance, especially in the Buy Now Pay Later (BNPL) arena. All banks offer consumer credit, but it’s not an attractive market in the Netherlands for banks such as Klarna because of the relative low maximum cap on interest. “Ikano Bank, for example, offers consumer credit in every market except for the Netherlands because profits are so limited,” according to Groenveld.

The good news is that this regulatory burden is temporary. At some point, the focus will shift back to growth and entering new markets – the knock-on effect being that smaller players are run out of the market. So, from that perspective, the M&A outlook is good.

Digital transformation

The Netherlands has been at the forefront of digital innovation: Most banks have already digitalised entire operations, effectively becoming digital banks. They have retained offices but outsource core activities. For example, the servicing and administration of mortgages is being outsourced to service providers, such as Stater. Payments, retail and banking and capital markets are converging as the transition from in-person to digital customer engagement accelerates.

One challenge the banks face is attracting skilled IT talent to work on applications and infrastructure, even though they pay relatively well. The main competition comes from fintech companies, which entice young talent with a more informal culture and freedom in planning their work.

Purpose-led portfolios

The environmental, social and governance space is top of mind – and the Netherlands is much further advanced than the US, the UK or Australia in terms of investing in clean energy. All four major banks take sustainability seriously, examining the footprint of portfolios, making divestments or even running down their “more polluting” portfolios. For instance, ING won’t invest in gold and metals, and ABN AMRO sold its trade and commodity finance book because of the environmental burden of its underlying assets. This trend is set to continue.

Fintech goes mainstream

Citing an average annual growth rate of nearly 25 per cent, Deloitte’s report states that fintech is among the fastest growing sectors worldwide. Collaboration is standard practice in the Netherlands, and the banking-as-a-service (BaaS) offering of fintech companies is fully accepted by the traditional banks. In that context, the entire digital infrastructure is outsourced and run in a cloud-based solution. “Mambu is an excellent example of a relatively new player offering a widely adopted BaaS solution to many reputable banks,” says Groenveld.

Banking apps are now far more advanced and user savvy because they’re designed by fintech companies. But, according to Groenveld, “what you are also seeing is fintech companies, like Bunq and Revolut, moving towards a traditional banking model. They need the (interest) income derived from assets on the balance sheet, as retail customers are reluctant to pay the level of fees required to cover the costs of the innovative services provided by fintech banks.” This trend will likely continue and, at some point, the models will converge.

Home market hinders megadeals

The report highlights a banner year for mega deals, with the five largest announced deals topping the $5 billion mark. This size of deal is just not seen in the Netherlands. Banks are looking to solve all the customer due diligence issues, to know what kind of customers they have and ensure procedures are in order. If this is achieved, it would open up increased M&A activity.

It is also a very consolidated market and difficult to find sizeable acquisitions. Groenveld cites ING and ABN AMRO as examples of companies that “want to expand in Germany, but there’s a lack of large banks available for acquisitions.”

Engage in expansion

The focus on the home market and northwest Europe, and maintaining core markets rather than pursuing new ones, is inhibiting growth in the M&A arena. Again, cost is a crucial driver, with management teams intent on solving operations instead of adding new ones. The international players are exploring more opportunities in doing M&A in Asia, for example, but in the Netherlands there is less enthusiasm for expansion abroad.

“To grow faster, we need to step out of western Europe,” says Groenveld. “There is potential for this, especially with ING, which has a more global view – the biggest opportunity for growth in M&A is likely to be in Asia, not in western Europe.” The following year will likely be comparable with last year, with a lot of internal focus by the big banks, more specialisation, more streamlining of decisions and divestments in specific areas. This will pave the way for bigger deals in the future.

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