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The Netherlands’ banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

The Dutch economy is characterised by its connectedness to the international economy. The performance of the Dutch economy has been particularly strong in 2017 and 2018. The global trade slowdown, Brexit and the new age of protectionism slowed the Dutch economy. The expected GDP growth for 2019 is expected to reach a potential growth rate of 1.5%.

The growth rate of consumption of goods and services is expected to continue to drive the economy. A tight labour market goes hand in hand with a low unemployment rate. This contributes to higher wage growth, and expansionary budgetary policies, by the government, contribute to the growth of real disposable incomes. The Dutch housing market is expected to contribute positively to consumption growth. Housing prices are expected to grow, albeit at a more moderate pace than in recent years.

The high growth of the Dutch economy and the high level of taxes and social contributions have added to a favourable development of the government debt level. The total government debt will be far below the Maastricht criterion of 60%, with a projected debt level of 49% of GDP in 2019.

The Dutch banking sector is characterised by its relatively large size to GDP. Its assets were equivalent to 315% of GDP in 2018, down from 530% of GDP in 2007. The decline in balance sheet size, combined with developments such as digitisation and cost reduction programmes, have led to net decline of employment in the banking sector. In 2018, about 70,000 people were employed in the Dutch banking sector (based on NVB members).

The Dutch banking market is relatively competitive. Large Dutch banks are internationally active in order to serve the open and export-oriented Dutch economy.

The five largest Dutch banks account for about 85% of the balance sheet total. However, with the European banking union being phased in, 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 and the third largest is partly state-owned. The capitalisation of Dutch banks is good. Cost reduction and digitalisation drive profitability. However, new lenders have entered the Dutch market for mortgages and roughly 50% of new mortgage loans are issued by non-banks.

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. Amongst youth, payments between them are primarily initiated by mobile applications. The Netherlands will be one of the first countries introducing instant payments in 2019.

Banks play a vital role in the financing of Dutch companies, especially SMEs. The total amount of outstanding loans has decreased in recent years, mainly as a result of a lower demand for loans. The percentage of non-performing loans is low and the Netherlands ranks among the best among its EU 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.

The total amount of outstanding debt to non-financial companies in the Netherlands equals approximately €260 billion, of which almost 50% is loaned 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 of 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 2018 the healthy shape of the Dutch banking sector is in. The capital position of Dutch banks has continuued to improve in recent years. Core Equity Tier 1 capital has almost tripled for the three largest banks since the financial crisis.

The banking sectors’ profitability has somewhat rebounded in comparison to previous years with a return on equity in the sector of 9% in 2018, according to the Dutch central bank. Low interest rates remain a challenge, in combination with increased regulatory burdens and the need for investments in digitalisation and innovation.

Contributor: Paul van Kempen