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The Netherlands’ banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

The performance of the Dutch economy remains strong. GDP growth of 3.2% is expected in 2018, primarily driven by domestic factors and helped by low interest rates and strong housing market performance. Consumption is soaring due to higher employment and the expansionary budgetary policy of the government. Favourable international economic developments drive up export growth.

The double dip recession has been overcome and the economy is growing since summer 2013. Growth is expected to continue in 2019 (up 2.7%). As a consequence, the Dutch labour market is tightening rapidly. Unemployment will decrease to 3.5% in 2019 and wage growth will pick up in the coming years. Despite expansionary budgetary policies, the government runs a budgetary surplus of 0.7% and 0.9% in 2018 and 2019 respectively. The total government debt will be far below the Maastricht criterion of 60% , with a projected debt level of 48% of GDP in 2019.

The Dutch banking sector is characterised by its relatively large size to GDP. Its assets accounted for 370% of GDP in 2017, down from 530% of GDP in 2007. The decline in balance size, combined with developments such as digitisation and cost reduction programmes, have led to net decline of employment. In 2017, about 70,000 people are employed in the Dutch banking sector (based on NVB members).

The Dutch banking market is relatively competitive. Entrance barriers are fairly low. Helped by the low interest rate, new non-bank entrants enter the market of mortgages increasingly. Large Dutch banks are internationally active to serve the open and export-oriented Dutch economy.

The five largest Dutch banks account for 85% of the balance total in 2017. However, with the European banking union phased in step by step, the relevant market gradually becomes a truly European market. The ownership structure of the three major banks is diverse. The largest bank is publicly listed; the second largest is a cooperative institution.

Card payments are increasing each year at the cost of cash payments. Since 2015, the total amount of card payments is larger than cash payments. This development is expected to continue in the future. Contactless payments by card are increasing. Among the young, payments between them are primarily initiated by mobile applications.

Banks play a vital role in the financing of Dutch companies, especially to SMEs. The total amount of outstanding loans has decreased in recent years due to a drop in demand, mainly as a result of improved company profitability, leading to increased use of internal financial resources and equity financing. The percentage of non-performing loans is low and the Netherlands ranks among the best in the EU among its peers. Flexible forms of finance such as leasing and factoring have become more popular, but in terms of volume compared to outstanding bank loans, the use of alternative forms of finance is limited. Banks increasingly combine different forms of finance.

With increasing utilisation rates, we expect a pickup of demand for external credit in the coming years. This is supported by the expectations in the ECB Bank Lending Survey. The total amount of outstanding debt to non-financial companies in the Netherlands equals approximately €260 billion, of which almost 50% is lent to SMEs. About 10% of the outstanding amount are loans of less than €250,000. Acceptance criteria have been eased over the last year; eight out of ten loan requests are currently accepted.

Dutch banks have committed to supporting and stimulating the transition to a sustainable economy. A group of banks and other financial institutions have developed a methodology to assess the carbon emissions related to the institutions’ core activities: financing and investment. Some banks have set quantitative targets to decrease their climate impact. Dutch banks are also working on fine-tuning their services to green businesses, thus supporting the development of a green economy. They have contributed to the development of a toolkit for businesses, helping them to increase the ability to finance green business models.

The Dutch supervisor stated in its annual report 2017 that the Dutch banking sector is in healthy shape. The capital position of Dutch banks has continuously improved in recent years. Core Equity Tier 1 capital has almost doubled since the financial crisis of 2008 from 9.6% to 18.4%. The IMF confirmed the strong capital position of the sector last year.

The banking sectors’ profitability has somewhat rebounded in comparison to previous years with a return on equity of 12.8%. Low interest rates are a main challenge, in combination with increased regulatory burdens and the need for investments in digitalisation and innovation. All in all, the gross value added to the economy is approximately 4.9% in 2016.

Culture and conduct are very important for the banking sector. The Dutch banking sector has made culture and conduct one of its priorities. The introduction of the bankers’ oath and disciplinary law in 2015 contribute to making culture and conduct a continuing discussion theme.

Contributor: Paul van Kempen kempen@nvb.nl

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