The world around us

ABN AMRO’s operating environment is shaped not only by economic conditions and financial markets, but more than ever by society’s expectations. In recent years, these expectations have increased, particularly with regard to the role banks can play in combating financial crime and climate change. In 2019, market conditions remained challenging for banks.

1. Economic growth has slowed

During the year, global economic growth slowed because of trade tensions, a slowdown in manufacturing and increased political uncertainty. World economic growth was an estimated 2.9% in 2019, down from 3.5% the previous year. Global trade, meanwhile, registered zero growth – the result, in part, of the current dispute between the US and China. In the Netherlands – ABN AMRO’s primary market – the economy has proved resilient. In 2019, domestic demand became the main driver of growth, as international trade slowed. Private consumption, government spending and investments all contributed to GDP growth. During the year, growth in the Netherlands was lower at 1.7%, but still above the eurozone average of 1.2%. Other markets where ABN AMRO is active – Belgium, France, Germany and the US – also grew, though at a lower rate than in 2018. During the year, growing political uncertainty affected the world economy; stemming from political tensions (including Brexit), escalating trade disputes, continued tensions in the Middle East and street protests in a number of countries.

Interest rates in Europe, meanwhile, remain at historic lows, in part because of long-term factors, such as ageing populations. In 2019, rates continued to fall – at the end of the year, the European Central Bank (ECB) deposit rate was cut to -0.5%. For banks, low interest rates present a real challenge – they put pressure on profitability. Interest rates on client savings have been further reduced, but as client rates are low and in some cases negative, it will be increasingly difficult to offset the decline.

2. Society’s expectations are increasing

In recent years, what society expects of banks has changed. In the Netherlands, banks are under increased public scrutiny. Much of this stems from the 2008 financial crisis, when several banks needed financial support from the Dutch State. A decade on, trust in banks remains low.¹ Regulation has increased. Banks are also expected to invest for positive impact, combat climate change and support the international development agenda.

There is an increased focus on the role of banks in detecting and preventing financial crime and money laundering. An estimated EUR 16 billion are laundered in the Netherlands each year.² In 2019, the Dutch government introduced plans to combat money laundering – and reinforce the role of banks as gatekeepers for the financial system. Proposed measures included a ban on cash transactions over EUR 3,000 and tighter rules on customer due diligence. There is also more legislation – a push for increased disclosure on social and environmental impact, for example through TCFD³, and the EU Directive on Non-Financial and Diversity Information. In human rights, banks – like other companies – are expected to comply with the Protect, Respect and Remedy Framework, set out in the UN Guiding Principles on Business and Human Rights; human rights were also the centre of the Dutch Banking Sector Agreement, introduced in 2016.

¹ Source: Edelman Trust Barometer 2019 – financial services (only 48% of people surveyed in the Netherlands said they trusted the financial sector).
² Source: Dutch Ministry of Finance.
³ Task Force for Climate-Related Financial Disclosures.
Dutch Banking Sector Agreement on international responsible business conduct regarding human rights (October 2016). For more information, see

3. Banking has gone digital

In recent years, technology has fundamentally changed banking. Clients expect 24/7 banking wherever they are in the world - exactly the same access offered by other service providers. They also expect constant innovation. Technology is becoming faster, less expensive and more universal. As a result, banks need to invest more; in many areas, they need to reinvent themselves. Nowadays, most retail banking is conducted digitally. Finance has become a digital industry. It’s also ripe for disruption. Start-ups and tech companies are in a position to compete – offering new, innovative products and services. At the same time, bank branches are closing because of the increase in mobile banking.

The role of banks as an intermediary is also under pressure; companies can now deal with customers directly online, thanks to a combination of technology, open banking and new regulation, in particular with the EU’s Payment Services Directive (PSD II). Consumers also find themselves in the driving seat – there is a premium on customer service. The risk is that banks will eventually become utilities – they will be able to offer payment services and information, but will have to compete in a market where other companies also have direct access to their clients.

4. Banks are adjusting to higher capital requirements

Since the financial crisis, banks have been required to hold more capital as a buffer. To implement Basel IV, it is estimated that European banks will need just over EUR 90 billion in additional capital.¹ Other regulations also affect banks’ capital requirements. These include TRIM², the ECB’s review of banks’ internal risk models. TRIM is designed to ensure consistency across the sector, and act as a frontrunner for Basel IV. At the same time, new rules are being introduced for non-performing exposures (NPE); these are loans and other credits that are not being repaid as scheduled. New rules require banks to fully provision their NPEs.³

ABN AMRO is well capitalised and in a good position to meet stricter requirements. At the end of 2019, ABN AMRO’s main CET1 capital ratio stood at 18.1%, well within the bank’s 17.5-18.5% target range. ABN AMRO’s CET1 ratio includes EUR 10 billion in risk‑weighted assets added in anticipation of TRIM and further model reviews. Under Basel IV, our ratio at the end of 2019 stood at over 14%.

¹ For Group 1 banks. Source: Basel Committee on Banking Supervision (results of the cumulative quantitative impact study).
² Targeted Review of Internal Models.
³ The timescale varies: banks have two years in the case of non-collateralised NPEs, and up to seven years for collateralised.