The Banking Scene, Brussel; speech Chris Buijink

14 mei 2019

Voorzitter van de Nederlandse Vereniging van Banken, Chris Buijink, sprak 14 mei op de conferentie The Banking Scene in Brussel. U vindt de toespraak hieronder:

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  • Ladies and gentlemen, we are in the midst of major changes that also offer us new opportunities. In the past, banking was simply about risk and return. The modern three-fold approach for banks is: risk, return and impact. Impact on our daily lives and on society as a whole.

  • In this presentation, I will touch upon the European and the Dutch perspectives, as well as more long-term ambitions. As a sector and as an association.

  • Let me first give you an introduction to the Dutch Banking Association with a short video.
  • The Dutch banking sector has undergone real change in the past few years. When I was appointed president of the Dutch Banking Association six years ago, the challenges then were largely different from the challenges we currently face.
  • Back then, it was all about capital buffers, culture and behaviour and customer centricity.

  • Now, six years later, our main challenges are directly related to the future. I’m talking about issues like open banking, digitalisation, sustainability and getting results in fighting economic crime.

Culture and behaviour

  • But let’s look back first. In my first months as president I was proud to announce the introduction of the banker’s oath. All 70,000 employees working at Dutch banks, from the bottom to the top, would be required take it. It was a major operation that was executed within one year. Every newcomer in our banks now has to take the oath within 3 months of his or her entry in the bank.

  • I remember visiting several of our members and seeing the great variety of ways this was done: each bank integrates this in the cultural values of the institution. For instance, NIBC Bank in the Hague organised an big town hall meeting with debates on the dilemmas bankers faced on a day-to-day basis.
  • After the debates, about 300 employees took the oath in the presence of their managers and put their signatures on a large mirror. The CEO of NIBC Bank, explained in an interview that being true to the banker’s oath requires the willingness of ‘looking in the mirror of your soul’. The Japanese bank Mizuho also chose a mirror signing ceremony.
  • Rabobank organised a ‘Week of values’ in every part of the country. It also featured a lot of debate and was combined with the taking of the oath. ING decorated a special room for the oath-taking ceremony, which was performed for small departments following extensive discussions.
  • With the banker’s oath, the Dutch banking industry attracted a lot of attention from international news media, from France to Israel to the United States and Canada. In 2014, the New York Times wrote: ‘For Dutch bankers, words to live by’.

  • To quote the newspaper: ‘In the financial industry equivalent of the Ice Bucket Challenge, executives in the Netherlands have been taking the banker’s oath. If they break the pledge they can face fines or suspensions, or be blacklisted.’
  • That’s correct and that has already happened in dozens of cases since then. Recently, more than sixty bankers were suspended for several weeks because they forged the signatures of their customers in order to complete files.
  • Christine Lagarde, managing director of the IMF, praised the Dutch banker's oath in a speech at the end of 2015 at the Federal Reserve in New York with the words: ‘A change in culture must come from within’. The oath appeals to the moral compass of individuals, she said.
  • To me, the real meaning of the oath is the internal discussion among bankers about trustworthy behaviour. To call out what is going wrong and to call each other to account accordingly. Your superiors and your collegueas alike, taking shared responsibility to uphold the values of the institution daring to tralk about the dilemma’s you encounter. Fostering an open culture.
  • This, by the way, is also important for innovation and continous renewal at banks in the interest of the customer. That’s part of our purpose.
  • Important elements of the banker's oath put the interests of the client center stage as well as the commitment to maintain and improve confidence in the financial sector.

  • That confidence has increased slowly during the past two years. We measure that in the Netherlands through the Bank Confidence Monitor, an independent survey conducted among 12,000 consumers.
  • But we know that trust is fragile. In the Netherlands, many people still remember that ten years ago, following the outbreak of the financial crisis, banks had to be rescued with a considerable amount of state aid.
  • The financial crisis was soon followed by the Eurocrisis. Both threw the national budget well out of balance and resulted in seven lean years with real purchasing power going down. Up to today, banks have to deal with a lingering public anger that is all too easily aroused.
  • The media, policitians and the general public still react as if stung by a wasp when things go wrong at banks. And things do go wrong, unfortunately.

  • In fact, banks still have not yet built up sufficient ‘reputation capital’. The financial buffers have been strengthened, but the trust buffers must become stronger. 

Stability

  • Financially, the Dutch banking sector is in a much stronger position than it was 10 years ago.
  • 10 years after the crisis, banks balances are substantially smaller in relation to the GPDP, banks have less risk on their balance sheets and increased their buffers. In terms of core capital – known in the industry as CET1 – the buffers of Dutch banks have on average at least doubled since 2007. 
  • The Dutch domestic economy is served mainly by the Dutch banks. The many foreign banks operating in the Netherlands focus mainly on facilitating international trade relations with companies in their home countries and corporate finance.
  • Dutch banks are also very active in other countries, to a large extent because the Netherlands has a very open economy. Loans in countries other than the Netherlands, for instance, account for roughly half of the balance sheet. Partly nowadays because the leading role of Dutch banks in digital banking appeals to customers across Europe.
  • The composition of the balance sheet shown below shows that loans to households and businesses are the largest items. In total, more than 60% of the total assets is lent to retail and business customers, the real econom.
  • Banks facilitate payment transactions in the Netherlands, which are characterised by a high proportion of electronic payments. 60% of all payments at checkouts in 2018 were made using a bank debit card. An increasing number of payments are also made with mobile devices.

  • Together with the Scandinavian countries, the Netherlands is leading in Europe with non-cash transactions.

Digitalisation

  • Digitalisation is a key-trend in society at large and in financial services. Let’s take a look at a short video clip, made by Swiss Post Solutions.

  • We are seeing many new entrants to the markets, both competitors and new business partners. Big techs and fintechs boost innovation. Customers increasingly expect better, faster and cheaper financial services and personalised experiences.

  • New parties are responding to this by offering appealing propositions for specific target groups that respond better to the expectations of young people in particular (digital natives).
  • These new parties also ensure that underserved and underbanked groups, in particular, have access to financial services. This is a global development and of particular importance in emerging markets.

  • These new parties are providing a valuable addition to existing banking services. Think of alternative lending providers, for example. They represent more financing alternatives for SMEs.
  • Banks will have to invest heavily to meet these higher expectations for better customer experiences and customer journeys. In the Netherlands, banks are aware of this and have made customer centricity a strategy spearhead. To stay successful demands continuous innovation with a relentless interest in the way customers of today, tomorrow and the day after tomorrow can be served.
  • To be sufficiently agile and respond to increasingly faster innovation, banks will have to find solutions for their legacy systems. To this end, they are increasingly working with parties in the ecosystem. In general, we can say that fintech companies are more often partners than direct competitors.
  • Open innovation plays an important role here, with banks increasingly collaborating with fintech parties. This also brings its own challenges: how does a traditionally managed bank work together with an innovative start-up? How does the usually slow decision-making process and all the checking and balances in a bank fit in with empowering the entrepreneurial spirit.
  • The most important thing is therefore the culture change at banks which are going through a digital transformation: being digital, not doing digital.
  • Banks are connecting parties in a new eco-system, in which more and more non-financial parties play a role. Banks want to be at the forefront of this ecosystem, but not in a way that stands in the way of collaboration with big techs, fintechs and other players. To put it more emphatically: cooperation is essential.
  • As Philip Hammond, Chancellor of the Exchequer in the UK, recently stated:
    ‘It increasingly doesn’t make sense to talk about fintech and financial services as separate ideas. In just a few short years’ time, the innovative approaches of today’s fintech disruptors will simply be the way the financial services industry operates.’
  • And he went on: ‘Either traditional financial services businesses will have adopted them wholesale…or they will have been displaced by the fintech disruptors.’ 
  • Perhaps even more challenging for banks then FinTechs and neobanks is the future role of BigTechs, see for instance the announcement of Facebook Coin. Here too, collaboration could be an option, as ING demonstrated with the introduction of Apple Pay in the Netherlands. 
  • ‘The Smartphone is disrupting banking at last’, the Economist wrote last week. In most parts of the world, people have their bank literallty in their pocket. ‘Banker, disrupt thyself’, it is said.
  • Technology is the catalyst for the wide availability and use of information. However, the social implications are hard to predict. Societal acceptance and legitimacy of new technologies will ultimately shape the legal framework and thus the speed of innovation.

  • That is why a well-balanced policy is of the utmost importance. We must regulate and supervise in an innovative-friendly fashion. This is the major challenge for Europe if it is to become more innovative and ‘on par’ with US and China.
  • At the same time, it is important to maintain European values, whether it is GDPR or new guidelines for trustworthy Artificial Intelligence. It is interesting to see that GDPR is increasingly seen as a leading example worldwide.
  • What role could banks play? Trust is vital in a data-driven economy. And the trustworthy handling of financial data is the core business of banks. But where boundaries between financial data and other data blur, there is an increasing need for parties that can fulfil this role in a broader sense.
  • Our added value is that of reliable party for dealing with data and technology. We must retain that value in a world of Open Banking and AI. By joining forces between banks and public partners, we can be infinitely more successful in combating economic crime, also thanks to digitalisation.
  • Based on the confidence that banks still enjoy in protecting financial data, there may be a broader role for them in protecting customer data and facilitating confidence in digital economic transactions.
  • Digital and mobile services are the new standard for many customers. There is a variety of opinions on this theme among our members. There are banks that are fully committed to digitalisation and there are banks that are opting for the human dimension. Every bank chooses its own dimensions in this. It is of course a combination of the two that is necessary. No bank should loose sight of its customers both business and retail vanishing in a cloud of data points, if it wants to stay relevant.

Sustainability

  • On sustainability banks are leading in the Netherlands. Banks have sustainability at the heart of their strategies.  
  • The Dutch banking sector as a whole, together with the other players in finance from pensionfunds to insurers and assetmanagers, is committed to the national implementation of the Paris Agreement, which calls for a reduction in CO2 emissions of 49% in 2030.
  • The sector will report on the climate impact of financing and investments from 2020 and will have drawn up action plans to limit these by 2022 at the latest. As I said at the start of my presentation, banking is about risk, return and impact these days.
  • The Dutch banking sector wants to actively contribute to a more sustainable society. This is an irreversable trend, and banks must engage with their clients on their contribution achieving a more sustainable future.
  • We are part of the Sustainable Finance Platform in the Netherlands, chaired by the director of banking supervision at the Nederlandse Bank, in which the financial sector, supervisory authorities and government ministries work in tandem to take sustainability initiatives.
  • As a financial services provider, the banking sector wants to be a leader and challenger, especially with respect to those Sustainable Development Goals (SDGs) where banks can have the most impact.
  • It is not only out of the societal need of keeping our planet safe, that banks are taking these positions and actions, but also from a perspective of financial stability. Management consultant Oliver Wyman recently published an interesting study on this issue.
  • Climate change will lead to major adjustments to the global economy, especially to the energy industry. ‘Such fundamental changes will inevitably impact the balance sheet and the operations of banks, leading to both risks and opportunities,’ Oliver Wyman states.
  • I quote: ‘In order to effectively manage climate risks and protect banks from the potential impact, institutions should treat climate risk as a financial risk moving beyond traditional approaches that focus on reputational risk.
  • For some in our banking industry, this still may sound as an ‘inconvenient thruth’. I believe that we can serve many purposes simultaneously on the issue of sustainablity, and thereby show that our industry serves financial stability and humanity.
  • Sustainable, green finance offers many new opportunities for serving our clients as well. For example, by making the climate impact of loans and investments visible and by helping consumers and businesses reduce their climate impact through new products.

  • We do this by, among other things, offering practical solutions for financing issues and by working more intelligently with customers, governments and other financial institutions. It is in the end simply good business.

Profitability

  • I would now like to summarise and also draw some conclusions. Banks have big challenges in the area of sustainability, digitisation and keeping the financial system stable. But their path is narrow, in terms of trust, legislation and regulation.
  • Banks are subject to strict regulation. From that position, they have to compete with new entrants in the market. Is there a level playing field and, if we assume there is, will it remain so in the future? Shadow banking has to come out the shadows in terms of regulation and supervision. We need the same rules and the same supervision for the same activities.
  • Society has high expectations of banks with regard to societal problems, like combatting financial crime, promoting sustainability and human rights. Our Dutch prime minister even called banks semi-public institutions.
  • But the truth is that banks are commercial enterprises that have to make a sound profit for the stability of the system and to attract investors. Last month, The Economist wrote that Europe needs its banks to perform better.
  • In the last three months of 2018, the weighted average return on equity (ROE) of 190 European Union banks was 6.5%. That is not enough to keep shareholders happy. According to The Economist, they want 10% or thereabout, as delivered easily by most American banks.
  • ‘After the 2008 financial crisis, American banks were swiftly and forcibly recapitalised. Most European countries (with the exception of Britain, the Netherlands and Switzerland) were slow to act,’ according to The Economist.
  • ‘The euro area lacked a single supervisor and a common authority for resolving failed banks. Both were established several years later – and only after the euro area’s sovereign-debt crises had compounded the troubles of many lenders.’
  • For banks, Europe is the key to their future. Together with the new European Commission that will be formed after the upcoming elections for the new European parliament, we have to work for the completion of the European Banking Union and the realisation of the Capital Markets Union.
  • Brexit must not slow down our ambition to strengthen the European Single Market. Even in the case of an undesired ‘hard Brexit’, we have to establish good links between EU and UK financial markets. Let’s be smart about that.

Humanity

  • The good news is that by serving their customers and society, banks also serve their own interests. For banks, moving consumers and enterprises towards more sustainable housing and business is also a matter of managing future risks.
  • Helping society to fight crime also helps to preserve the integrity of the financial system and prevents reputational damage to banks caused by negative publicity. Banks have to show that they are part of the solution instead of part of the problem.
  • To be effective in preventing money laundering and the financing of terrorist activities, banks have to work more closely together and we need public-private partnerships on the national level – like JMLIT in the UK – but also cross-border in Europe.
  • Banks and their leaders have to speak up and show themselves to the public, not only because society demands it, but also because research shows that a clear purpose attracts new staff, especially from among the younger generation, and bolsters reputation. Visible leadership is key both within banks and in relation to society.
  • Ladies and gentlemen, the title of this part of the conference, ‘Banking for Humanity’, is spot on. Compliments to organiser Rik Coeckelbergs.
  • I have no doubt on this: Banking for humanity is our core business!
  • Our current and future mission is to maintain financial stability and build a future-proof banking industry that serves its clients, society and the economy in a way that makes people feel: ‘I’ve been served well by my bank,’. We can and must earn their trust again.
  • Thank you for your attention.