The world around us

Our business is affected by different social and economic factors. These may include new regulations, the increased use of digital technologies, or volatile market conditions. Trust in banks is not yet restored, especially in the Netherlands. These factors affect not only our business and performance but also our ability to deliver long-term value to our stakeholders and society.

Economic growth

Over the past year, we’ve seen continued growth in the Dutch economy – around 2.5% in 2018, compared with just below 2% for the eurozone as a whole. Along with this economic growth, we’ve also seen a strong, but competitive, housing market – the result of continued demand and a shortage in houses for sale. Economic growth is positive for our business – particularly for lending. Going into 2019, however, there are signs that global economic growth may be slowing. Confidence has weakened; trade and industrial output have declined. Stock markets also fell sharply in the final quarter of 2018. In Europe, there are concerns over budget problems in Italy and the UK’s planned withdrawal from the European Union.

Low interest rates

Interest rates have remained at historic lows. The European Central Bank’s deposit rate has been stuck at -0.4% since March 2016. This has a considerable effect on our business. The ECB rate acts as the basis for other rates – this means, in effect, lower rates on mortgages and loans. For us, as a bank, it means lower margins and reduced profitability.

New technologies

With digital technology, clients expect quick, ‘frictionless’ service. So we’re redesigning our products, processes and distribution. There’s also more emphasis on data security and protecting clients’ privacy. At the same time, digital technology has reduced the need for bank branches. In five years, we’ve closed more than 220 branches in the Netherlands. Technology means more efficiency, opportunities for new products and services, but it has also increased competition, particularly from tech companies and online-only banks. In many cases, new technologies also allow direct transactions between producers and consumers – without the cost or inconvenience of going through a bank. Over time, this could erode banks’ traditional role as a financial intermediary.

Society’s expectations

Society’s expectations are shifting. The 2015 Paris Agreement calls on business to play its part in fighting climate change. Making a profit is no longer enough; society also expects companies to play their part in tackling social and environmental issues. Financial companies, in particular, have a role in mobilising resources to help the shift to a more sustainable economy and to support the UN’s sustainable development goals.

Rules & regulations

In recent years, we’ve seen a step-up in financial services regulation. Regulators have looked to strengthen protection for consumers and investors, and to ensure the long-term stability of the financial system. In recent years, we’ve seen new proposals on capital requirements – through Basel IV. There has also been new regulation in data protection, as well as stricter rules on financial reporting and the use of internal risk models. New regulations may bring extra costs – in many cases, we need to update our internal systems and processes. But, if implemented correctly, new rules should increase transparency and strengthen consumer confidence. For ABN AMRO, there are also opportunities – to adopt new technologies, to work with external partners and to make the most of new regulations by offering clients add-on services that weren’t possible before – in areas like online accounting, cash flow forecasting and risk management. In sustainability, we have the TCFD framework on climate disclosures – and the EU’s recent action plan on sustainable finance – aimed at creating a greener and more sustainable EU economy.

New regulations may bring extra costs – in many cases, we need to update our internal systems and processes. But, if implemented correctly, new rules should increase transparency and strengthen consumer confidence.

For ABN AMRO, there are also opportunities – to adopt new technologies, to work with external partners and to make the most of new regulations by offering clients add-on services that weren’t possible before – in areas like online accounting, cash flow forecasting and risk management.

  • Basel IV will increase overall capital requirements for European banks, including ABN AMRO. The aim of Basel IV is to strengthen confidence in the banking sector.
  • IFRS9 was introduced at the beginning of 2018; the new requirement effectively resets reporting rules for assets and impairments. Over time, this may mean increased volatility in the impairments we report as part of our financial results.
  • The European Central Bank is carrying out a review of banks’ internal models. This review – known as TRIM (Targeted Review of Internal Models) – will take in banks across the eurozone. If the review finds inconsistencies, we may need to update our risk and credit models.
  • The EU’s Markets in Financial Instruments Directive, or MiFID II, steps up protection for consumers and investors. The directive should make European financial markets more transparent and efficient. To comply, ABN AMRO has already upgraded processes, IT systems and Know Your Customer procedures, particularly in private banking.