Banks untroubled by economic headwind

15/11/2004 10:00

Dutch banks have increased their turnover substantially in recent years. Their income from interest generating activities and commission, the two main sources of revenue for banks, doubled between 1995 and 2003.

Increase in GDP and banks’ income

Increase in GDP and banks’ income

In the period 1995-2000, when the economy was in top gear, commission income was the motor behind the growth. Subsequently, from 2001to 2003, when economic decline set in, interest generating activities contributed most to the growth in banking income. In both periods, the growth in total income was around twice the size of the increase in GDP.

Total income from interest and commission

Total income from interest and commission

Interest generating activities

Banks saw a strong increase in income from interest generating activities from 1999: the increase in 1999-2003 was 13.4 percent on average. A large part of the growth in interest income was accounted for by the increase in credit granted from 1999. Businesses, households and foreign borrowers took out more in loans.

In spite of the economic recession in the years 2001 to 2003, income from interest also grew in this period. Lower interest rates meant that borrowing was cheaper for businesses and private households, and so banks granted more and more credit. However, net income from interest decreased. Banks were able to compensate for this lower interest income by passing on the decrease in interest in the interest they paid out. This was reflected in lower interest rates on savings.

Commission income by type

Commission income by type

Income from commission

Most types of commission income rose steadily between 1995 and 2003. Commission earned on orders for securities and share issues was more dynamic: it reached a record level in 2000, fuelled by the favourable stock market developments. However, parallel to the downward trend on the stock market in subsequent years the number of stock market transactions and share issues fell, and with them the corresponding commission payments to the banks, which nearly halved between 2000 and 2003.

Hilbert van Dijk