European Banking 2017

Beyond Restructuring: The New Agenda

European Banking 2017

Europe’s banks have spent the last nine years working hard to recover from the financial crisis. They have been repairing their balance sheets, making the changes demanded by new regulations, and exiting structurally unprofitable businesses, all in a low growth context. Our new report looks at how far they’ve come in that time – as well as identifying the challenges that lie ahead in order to thrive in a rapidly changing environment.

While the performance of European banks has recovered from the lows of 2008 the average return on capital of 4.4 percent remains well below the hurdle rate. This average masks large geographic differences; banks in some EU markets have completed this restructuring process, while other markets continue to struggle.

However all of Europe’s banks now also find themselves having to deal with a rapidly changing environment. New customer preferences, digital interfaces and platform businesses are changing how customers bank – a trend that will be accelerated by regulators’ push for “open banking”. Automation and data tools are creating the opportunity and imperative to significantly cut cost bases.

In short, Europe’s banks may emerge from the crisis only to face a whole new set of challenges. The new agenda is going to require boldness of a kind: going beyond restructuring and making changes to the banking business model itself. To date, only a few organizations are taking action to fully address these new challenges.

We believe the incumbents in the sector still have major structural advantages and can thrive if they make the bold moves necessary.

Six Future Challenges Facing European Banks
  • 1Responding To Changing Buying Behavior

    The growth of aggregator platforms on which customers can compare, buy, and use a variety of suppliers in a much wider range of products is forcing banks to make critical strategic choices around participation, investment, and partnerships in this area.

  • 2Upgrading And Replacing Legacy Infrastructure
          And Processes

    The pace of change of technology, combined with a desire to reduce cost will see continued work to replace legacy systems with “greenfield” infrastructure, and the use of application programming interfaces (APIs) to allow a modular approach to systems build and replacement.

  • 3Delivering Higher Financial Resource Efficiency

    In light of the increasing complexity of constraints on financial resources, banks will deploy advanced financial resource management tools that aid decision-making by modelling the comprehensive financial resource consumption.

  • 4Consolidation Opportunities

    In light of ongoing challenges to economics, we believe consolidation is likely to be accelerated in some markets, for example in Italy. However, it will not be a priority in many markets.

  • 5Building A Workforce Of The Future

    As banking changes, so does the workforce required by banks now and in the future. Banks will need to use innovative approaches to talent management as well as workforce planning to attract and deliver the talent they need.

  • 6Delivering For Our Societies

    The financial crisis triggered long-term political changes with significant implications for banks. The growth of nationalism and populism is putting further onus on banks to be part of the solutions to society’s broader challenges.

Lindsey Naylor: New Challenges Facing European Banks

Thomas Schnarr: German Banking System

Bruno de Saint-Florent: French banking system

Non-performing loan (NPL) ratio per European country (December 2016)

European Banking 2017