The Future of the Belgian Banking Industry – Executive View

Research by Professor André Thibeault and researcher Thomas Matthys at Vlerick Business School

The Vlerick Centre for Financial Services – KPMG Corporate Partnership

This survey on the future of the Belgian banking industry is part of a 3-year project conducted in the format of a Prime Foundation Partnership between KPMG and the Vlerick Centre for Financial Services. 

KPMG

On November 5th, the results of a survey on the future of the Belgian banking industry conducted by KPMG and the Vlerick Centre for Financial Services (CFS) was released during an event that took place on the Brussels campus of the Vlerick Business School.

This survey on the future of the Belgian banking industry is part of a 3-year project conducted in the format of a Prime Foundation Partnership between KPMG and the Vlerick Centre for Financial Services. 

The goal of this study is to represent the points of view of financial executives in the Belgian banking sector on the future of their industry. The analysis was conducted through personal interviews with the executives of 15 Belgian banks, who altogether represent 92% of the sector in terms of total assets.

Figure 1

Figure 1:  List of the banks interviewed

From this sample of banks, we have interviewed 8 CEOs, 5 CFOs, 1 COO and 1 CCO.

The dimensions considered during the interview are: the value chain, the regulatory environment, key performance indicators and an overall view on the future of the sector. Within these dimensions, we highlight differences between large and small banks, as well as between banks with different business models, without conceding the confidential nature of the interview.

The main conclusions of the survey can be grouped under:

Pressure on the value chain

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.

Regulatory pressure

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.

Measuring performance

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 new 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%.

The future Belgian banking landscape

We have 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. Interviewees take into account the possibility that technological companies like Google, Facebook and Apple will start to offer banking services on a large scale. However, the majority of banks does not foresee a shifting paradigm in which technology-based companies enter the Belgian market because of the current nature of the Belgian client, who is reassured by physical proximity.

Concluding remarks
1/ Value chain:

On the income side:

  • The flat net interest income
  • The need of higher fee business

On the costs side:

  • Higher IT expenditures
  • A focus on the (streamlining of) distribution channels
2/ The regulatory framework:
  • The new regulation impacts profitability as well as the business models of banks
3/ Performance:
  • An average target ROE of 10%
  • The need to improve substantially the cost-income ratio
  • New KPIs with a focus on the client
4/ The landscape:
  • Less, but bigger banks
  • Pan-European players

Read the entire study: “The future of the Belgian banking industry – the executive’s point of view”.

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