Why are banks taking “bank” off the windows? –

Banks are evolving into a “one stop shop” for the satisfaction of every need, adopting a new operating model, in which the provision of products and services of third-party companies plays a dominant role. This is now a key aspect of their business planning, the successful implementation of which is a necessary condition for achieving profitability goals.

Especially in the current environment of interest rate deceleration, which will inevitably put pressure on net interest income, strengthening non-interest income is more relevant than ever.

The message

As a banking source typically notes, “the message we want to send in all directions is that we are not only “banks”, but also offer every possible solution for the implementation of our clients’ plans, personal or professional”. It is not just a coincidence that the Piraeus group removed the word “Bank” from its logo in the recent rebranding, while for some years the motto on the windows of Eurobank‘s branches has been “Banking and Insurance Services”.

The results

The objective of this strategy is to increase the participation of commissions in the total income of the banks. In this way they will enhance their organic profitability, without increasing their risk-weighted assets and the use of their funds. As a result, profitability for their shareholders increases, without the risks taken when balance sheets are enlarged through credit expansion. The results are already visible.

In the 2023 financial year the net fee income of the four systemic groups reached record levels of €9.1 billion, recording an increase of 34% or €2.3 billion compared to 2021. Their performance in this front are even better this year, with the relevant figures comfortably exceeding 10 billion euros, as already in the first half of 2024 they reached 5.4 billion euros. This increased the participation of net income from commissions on the total operating income close to 20%, from 15% until a few years ago.

However, the distance that separates them from the average of around 30% in the euro zone is still significant. The aim of their administrations is to close this gap gradually in the coming years. For this purpose, credit institutions are expanding their partnerships with companies both from the financial sector and from other industries, to make products and services available for a fee. The most typical cases are the following:

1. Insurance products: All banks now offer insurance services through exclusive partnerships with industry companies. In this way, their customers can cover every relevant need directly from their bank.
2. Investment products: In addition to the investment programs created by their subsidiaries, the banks have through their network, digital and physical, also third-party products, which expand the options of their clients in the field of portfolio management. At the same time, fintechs specializing in online investments are entering the equity capital, integrating the relevant services into digital banking.
3. Search for a roof: In the portfolios of the banks are currently thousands of properties that came into their possession through auctions. This stock is now available from them, who also act as brokers for those looking for homes and at the same time finance their purchase with mortgages.
4. Energy upgrade of properties: Credit institutions provide advisory services to those who want to upgrade their property. A typical example is the new systemic group service that will be launched in a few months, through which its customers will immediately have in their hands a study for the energy upgrade of their home with the proposed works. At the same time, the bank will also propose workshops that will implement them and finance them with a loan.
5. Complex financial products: Banks have begun to offer their customers, especially business credit, more exotic products to protect their financial position. For example, a large bank gives the possibility of hedging the risk of rising energy prices. This is a useful service, especially for businesses whose operating costs are highly dependent on fluctuations in the energy market.