In 2016 we navigated rough seas; the year was characterized by seismic and unexpected changes in the geopolitical landscape. European retail banking was not left unscathed; declining revenues were not offset as the industry struggled to sustainably reduce costs. However, there are major variances in the performance landscape in Europe with clear retail banking champions emerging, alongside a widening gap between the mainstream and the excellent performers.
In 2016 a background of continuing economic recovery saw solid gains in loans and deposits revenues; however, sustained low interest rates, combined with new regulations on interchange fees have hammered retail banks' profitability. It is fair to say that many European retail banks are failing to adapt and digitize their business models effectively and the expected shift to fees and commissions to enhance revenues has not happened quick enough; this is negatively affecting the overall performance of the sector, leading to unsatisfactory levels of profitability.
In parallel, a downfall in credit quality remains a challenge at different levels across Europe. While overall ratios improved on average nonperforming loans, Southern and Eastern Europe countries were saddled with higher and increasing levels of credit risk. Risk provision costs have significantly hampered retail banks' profitability in these regions.
To adapt and address these challenges, struggling banks can borrow from the book of the successful.
The A.T. Kearney European Retail Banking Radar is the leading industry study for banking leaders seeking deep strategic insights into the most critical performance indicators and trends. The survey, first conducted in 2010, analyzes six core dimensions of banking performance in retail banking.
Income per customer
Income per employee
Net interest income relative to total income
Risk provision costs relative to total income
Profit per customer
The 2017 Retail Banking Radar report reviews these six critical dimensions, and is supplemented this year by a new industry scenario exercise describing three alternate visions of disruptive change in European retail banking: 1) Open banking; 2) Global shocks; and 3) Rise of the giants.
The full 2017 A.T. Kearney Retail Banking Radar report, delivering detailed and in-depth insights and viewpoints on the current state and future of European banking, with case studies that highlight and analyze class-leading champions, is now available to download.