The UK Banking Industry Is Better Prepared For Competition In The Euro-Zone

Europe is 11 times more overbanked than the UK, the least overbanked country in Europe

In a unique survey it is revealed that the top 100 banks in Europe believe that the market is vastly oversupplied. The survey, commissioned by IBM and conducted by MORI, reveals the UK industry is the most advanced in addressing this oversupply in terms of restructuring and reducing both the number of banks and the number of branches. The UK is itself still considerably overbanked and is rapidly reducing the number of banks and branches.

Europe as a whole is 11 times more overbanked than the UK with 23 banks per million population compared with 2 per million in the UK according to OECD figures. As far as branches are concerned Europe as a whole has 75 per cent more branches than the UK, 495 branches per million of population compared with 285 in the UK. Central Europe is the most overbanked region and Southern Europe is overbranched rather than overbanked.

The banks' own perception of oversupply in their countries is as follows: in Central Europe a net of 89 per cent believe their country is overbanked, in Southern Europe a net 83 per cent have this perception and in Northern Europe a net 47 per cent think their country is overbanked.

The UK is also the least overbranched country in Europe, in relation to the UK, Central Europe has an excess of branches running at 74 per cent, Southern Europe 95 per cent and Northern Europe 60 per cent.

If the bank extinction rate of the last ten years continues Europe is set to lose at least 25 per cent of its banks in the next ten years. The advent of the single European currency and the spread of new technology will accelerate the process of concentration through mergers and acquisitions.

"Europe is vastly overbanked and Darwin's law of the survival of the fittest will certainly apply. IBM believes that institutions who want to prosper in the new environment, rather than just survive, must take a fundamental look at their business and the technology that will support it in the next millennium and invest now. IBM has worked with many US institutions facing similar issues and is currently working with many European banks who are addressing this challenge now. We are able to offer a consultancy review as well as developing integrated business systems." commented Larry Hirst, General Manager, IBM Banking, Finance & Securities, EMEA.

Geoff Henderson, UK general manager, IBM banking, finance & securities added; "The UK market has been radically altered by the demutualisation of many building societies and the subsequent take-over and merger activity that has resulted. These institutions are taking the opportunity that this integration brings them to look at their customer systems and business processes from a different angle."

"The UK banks are also witnessing new entrants such as supermarkets competing for customers in areas they have always considered their territory. This means that they must add significant value to the products and services they offer to survive, technology offers a way of doing this."

A summary from the report of the pressures reducing the numbers of banks are:

• the rate of return to bank shareholders is uneconomic. This is being caused by competition from the securities and insurance sectors
• mergers and acquisitions are reducing the numbers of banks by about 3 per cent per year
• 90 per cent of respondents believe EMU will result in a decrease in the number of banks in Europe
• technology is perceived as a pressure to cause change in the banking industry by 84 per cent of respondents, with 27 per cent seeing it as the most important
• just under half of the respondents saw competition as a pressure for change although this will be increased by the introduction of the EMU as it will bring down many of the barriers to a single banking market.
• the spread of telephone and electronic banking will reduce the need for branches and will heighten competition both within and across borders.

Technical details

Regions of Europe as defined in the report Northern - Belgium, Denmark, Finland, France, Netherlands, Norway, Sweden, United Kingdom Central - Austria, Germany, Switzerland Southern - Italy, Portugal, Spain Telephone interviews were conducted between 6 May 1997 and 23 May 1997. The sample contained the top 400 banks within Europe, and the respondent was either the Chairman, Chief Executive, or another Senior Executive within the bank, 101 interviews were conducted in total.