Amsterdam - Dutch banks ABN Amro and ING, once the pride of Amsterdam's international financial hub, are emerging from government bailouts to face a very different future in their local markets.
Both banks cost their country nearly 32 billion euros to prevent a collapse during the financial crisis. Both are close to repaying their debts and standing alone again. But having reshaped the international units that got them into trouble, both now have to work out how to profit in a weak local economy and an industry stifled by some of Europe's toughest regulations.
“If growth was your main objective then you've got a difficulty in this market,” says Koos Timmermans, vice-chairman for banking at ING.
The Dutch economy, hit by a 20 percent drop in house prices and a collapse in consumer spending, is expected to grow just 1 percent this year and 1.3 percent next. That's below European Commission estimates of 1.2 and 1.8 percent for the euro zone, and well below long term average growth of 2.4 percent.
In such an environment, thrifty households - the Dutch are traditionally big savers - are taking advantages of low interest rates and a tax change as well as hoarded savings to pay off mortgages early. Rabobank, a mutual lender and the country's No 2 bank, says it expects its stock of mortgage loans to halve within 30 years.
As a result, banks will be competing fiercely for a small pool of business from small and medium-sized enterprises - larger firms are increasingly financing themselves through debt markets - and counting every fee and commission.
Bert Bruggink, chief financial officer at Rabobank, which relies on the Netherlands for 75 percent of its earnings, says balance sheet growth will be “limited” in the coming years.
“On the income side, it is a very unattractive market, margins are low, commissions are non-existent,” he told Reuters.
But ING's Timmermans said his bank was dealing with the challenge of weak demand by cutting prices for customers and offering them products beyond just plain vanilla loans.
“Are we sitting here and waiting for the balance sheet (in the Netherlands) to shrink? The answer is no...You need to work harder to make your lending work.”
ING, the Netherlands' largest bank by assets, is in a better position than rivals given its domestic business makes up just a third of its earnings.
The group, which had to take a 10 billion euro state bailout in 2008, is aiming to repay the government next year and finish its restructuring by the end of 2016.
But its 2013 return on equity of 6.4 percent is a far cry from its 2015 goal of 10-13 percent, a target it needs to hit if the bank is to keep pace with the returns reached by Nordic banks such as Nordea.
ING is set to unveil a new banking strategy on March 31 ahead of the sale later this year of its insurance business. It has already ruled out a return to empire-building once a state-aid inspired ban on acquisitions lifts next year.
ABN's rescue cost the state 21.66 billion euros. By the time it returns to the stock market, most likely in 2015, it will be radically different to the bank that was taken over by Royal Bank of Scotland, Santander and Fortis in 2007 in an ill-fated $100 billion deal.
That ABN, subsequently nationalised in 2008 when the crisis hit, was known as a swash-buckling investment bank with far flung operations and dizzyingly complicated products.
The new ABN is a predominantly retail bank that draws 80 percent of its earnings from the Netherlands. Impairments are running at 0.24 percent of the total mortgage book at ABN - far lower than some European banks but ten times higher than ABN's previous level - and the bank is still targeting a return on equity of 9 to 12 percent by 2017.
ABN's chief financial officer Kees van Dijkhuizen believes Dutch banks' impairments will remain high for a couple of quarters after the economy improves but Dutch people's propensity to prioritise repaying home loans should mean bad debts will not get out of hand.
“It's more a mentality issue,” says van Dijkhuizen. “It's very high on their agenda to pay the mortgage.
The reformed Dutch banks still have another problem to overcome, and it's a cultural one - the Dutch no longer view with their banks with pride but with suspicion.
“Banks are not liked a lot, because they are understandably seen as part of the cause of the crisis,” said Timmermans.
Acknowledging voters' feelings, Dutch Finance Minister Joroen Dijsselbloem has proposed industry curbs far stricter than international regulations. He has suggested banks' assets be limited to 25 times equity rather than 33 times and that all financial services staff bonuses be restricted to 20 percent of base pay. The European Commission has recommended curbing only bankers' bonuses, to 200 percent of their salary.
Dutch bankers say Dijisselbloem's plans, which are expected to pass into law, will make it difficult for them to hire overseas talent and further restrict a market that would benefit from the competitiveness and expertise of international rivals - the foreign banks that backed out of Amsterdam during the financial crisis have still not returned.
“Nobody competes with the large financial centres like Wall Street and the City, that's not the ambition,” said Wim Mijs, head of the Dutch Banking Association, “but Amsterdam should be attractive for foreign players.”