Belgian banks today are operating in a low growth, low interest rate environment, which is increasingly putting pressure on the main value driver for most banks: net interest income. While most banks are trying to offset the erosion of interest margins, many are struggling to do so and about half of the banks in the sample seem to recognize that there will be some suffering on this value driver. The focus on cost management strategies is expected to continue in the future.
Making physical branches more cost-effective through increased automation and streamlining of different distribution channels will be one of the top priorities for the larger banks. For both smaller and larger retail and universal banks, the integration of different contact points will allow the bank to create a complete customer experience and additional value to the bank.
On the regulatory side, a vast body of rules is heading for the sector, and banks are now in the process of evaluating and implementing requirements and new compliance procedures. In the report, we specifically draw attention to the expected consequences for the banking industry of the Basel III capital and liquidity requirements. Around 87% of the banks interviewed confirm that the implementation of the Basel III regulatory framework will impact the banks’ profitability and/or the choice of business model in the future.
With new strategies and business models come new ways of measuring performance. There seems to be increased attention to customer-related key performance indicators (KPIs). Customer-centricity, client satisfaction and net promoter score will be the most important KPIs of the future. Concerning the more traditional measures, 71% of the banks are targeting a cost-income ratio lower than 60%, while the average return on equity target is 10%.
To conclude the interview, we asked the executives questions about the general state of the Belgian banking landscape in the coming 5-10 years. About 80% of the banks are convinced that the number of banks will decrease through a further consolidation phase set to start two years from now. Banks will grow larger, and the presence of pan-European players will become inevitable.
The results were presented on November 6th, on a seminar at the Vlerick offices in Brussels. A panel of experts discussed the most important findings of the study.
The panel debate included executives of banks such as BNP Paribas Fortis, Bpost Bank and Argenta, as well as representatives of Febelfin (the Belgian Financial Sector Federation), KPMG and Vlerick. In a vivid debate - lead by Bart Walterus, head of Management Consulting at KPMG Advisory - a number of hot topics such as cost pressure, future distribution models, the necessity to split retail banking off from investment management, and a further consolidation of the Belgian banks were discussed.