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A successful year for European retail banks
2023 has been a successful year for European retail banks: After an already good previous year 2022, retail banks grew their topline significantly in 2023. Banks managed to contain operating cost growth in 2023 to a few percentage points – mainly driven by inflationary pressure.
As a function, the positive gap between revenue and cost has increased considerably in 2023, as banks continued to reap the benefits of interest hikes and margin expansion. Going forward, we expect a topline decrease due to interest margin compression, and a continuous cost uplift.
On a global level, the performance trajectory of 2023 has been similar, with differences in the magnitude of effects. While the international sample exhibited a homogenous cost development (+1% in the US and Australia), topline has developed more strongly in the US (+15%) than in Australia (+4%).
Massive margin effects impacted the retail banking market in 2023
KPIs of the European retail banking market in 2023
Revenue capture depends on market context
While 2023 has been another great year for topline development of European banks, the country context matters:
- At the top end, Italian (+69% YoY), Austrian and Spanish banks (+44% YoY each) displayed a substantial boost in their net interest income
- At the lower end, France for example experienced a decline in net interest income, due to structural reasons: A high share (~80-90%) of fixed-rate loans in combination with an increase in regulated deposit rates (e.g., “Livret A” rate at 3%)
Fees and commission income has stagnated overall, albeit with notable decreases in some markets e.g., Nordics (-12% YoY) and Spain (-7% YoY), partially due to a change of mix towards fixed income/ deposit products.
Seize the moment to realize a competitive advantage
In the past year, overall ~85% of retail banks improved their topline, with less than 20% progressing on cost. Going forward, we expect a topline decrease due to interest margin compression, and a continuous cost uplift of 3% for 2024.
Five priorities for European retail banks
Given less favorable macro developments and growing cost pressure, retail banks need to shift their attention to the following five priorities:
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CostTopline success has provided short-term relief on cost pressure – banks need to seize the moment to drive cost measures towards a competitive advantage
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Digital/ GenAINew technologies offer application potential across the value chain – to reap the benefits, banks need to ensure organisational and technological readiness
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Balance sheet and incomeIn a world of growing uncertainty and interest rates back for longer (although expected to decrease), banks need to pursue active balance sheet and (fee) income mgmt.
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TalentWith demographic changes progressing, and skill/ capability requirements changing significantly, banks need to revamp their talent strategy
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Embedded financeIn light of emerging API schemes and more frequent partnerships and ecosystem plays, banks need to ensure they maintain relevant roles and positions
Dominik Berner, Julia Burger, Ramon Papavlassopoulos, Christian Mesisca, and Carolin Eiting have also contributed to this report.
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