Why does the Netherlands have relatively few banks?

Published on: 7 December 2023

Current issues related to economy, (responsible) investment, pension and income: every week, an APG expert gives a clear answer to the question of the week. This time: macroeconomist and expert strategist Charles Kalshoven on the question of why the Netherlands has relatively few banks.

Savings rates offered by Dutch banks are among lowest in Europe. That is why the Consumer and Market Authority (ACM) is now investigating whether the Dutch banking sector has sufficient competition. In Germany, for example, there are forty times as many banks. Why is it that there are relatively few banks in the Netherlands? As Kalshoven sees it, there are several reasons for this.

Trading nation

Kalshoven puts the statement that the Netherlands has few banks into perspective. “If I use iDeal, I get to choose between fourteen banks. It is true, however, that the big three basically call the shots here: ING, Rabobank and ABN AMRO. The three of them together have a very large market share.” The reason that a few big banks serve 83 percent of the Dutch population may have to do with our country’s history as a trading nation, Kalshoven says. “In the seventeenth century, trade in goods took off and this was accompanied by substantial flows of money. The development of the financial sector began early here. The Amsterdam Stock Exchange is the oldest in the world. People have been able to trade in VOC shares here since 1602. And the Amsterdam Exchange Bank has been providing financial stability since that time. Against that background, banks were able to flourish. There used to be more of them, but over the years there were many mergers, to achieve economies of scale or because different operations complemented each other, for example.


Because banks have been required to carry out extensive money laundering risk checks for several years now, the argument of economies of scale has become stronger. “An estimated 13,000 bank employees in the Netherlands are solely engaged in money laundering controls. For a small bank wanting to enter the market, that is a substantial hurdle to overcome.”

Another example of increasing regulation for banks is that since the 2008 financial crisis they have been required to maintain large equity buffers. “Banks’ profits have increased since the financial crisis, but the return on equity is quite stable, partially because banks have to hold more equity. In the stock market, banks are worth less than you would expect based on book value. But that is not a sign that investors have high expectations of profitability. The high costs and regulatory burden also make it difficult to successfully establish a new bank.”


What the banking landscape looks like also depends on politics. The Hague, for example, has not often stopped bank mergers in the past and sometimes even encouraged them. Kalshoven: “The fact that Germany has many more banks is partly due to the federal form of government. Traditionally, not only the federal states but also the regions below them have their own banks. We see something similar in the United States. In France, which is much more centralist, and where all roads lead to Paris, so to speak, they have a few very large banks just like we do here.”

The fact that Germany has many more banks is partly due to its federal form of government

The fact that the Netherlands has fewer banks than Germany or the United States is not necessarily a problem, the APG strategist continues. “The fact that a few big banks call the shots here has meant that we have a very efficient payment system in the Netherlands. In many countries it is slower, more expensive and more error-prone. And, in any case, anyone is free to switch to a (foreign) bank with a higher savings rate. Why this is not yet happening en masse? Possibly people feel it is too much trouble and they are thinking about the risks. The Icesave debacle will have made many Dutch people more cautious. At that time, thousands of Dutch people, provinces and municipalities were at risk of losing their money after this Icelandic bank went bankrupt.”

Kalshoven wonders if the level of competition is the deciding factor in the level of savings rates: “A bank’s balance sheet has two sides. Whether you want to attract a lot of savings as a bank - with a high savings rate - also depends on how much credit you want to extend. A low savings rate reflects that there is apparently already enough funding for loans. That said, it is interesting to examine the role of competition. The digital age alone makes savings disappear to a competitor more readily. We saw that earlier this year with the Silicon Valley bank.”


If the ACM concludes that there is insufficient competition in the Dutch banking sector, Kalshoven believes there are a few solutions. “If you switch to another phone provider, you can keep your cell phone number. But you can’t take your account number with you if you switch to another bank. The question is whether that stops consumers from opening a checking account with another bank, though. After all, a Transfer Service that saves consumers the trouble is already provided by the joint Dutch banks. Plus, you can also always keep your checking account with your own bank and open a savings account at another bank.”

The main solution lies in a European banking and capital market union, Kalshoven argues. “That has several advantages. The fact that Dutch banks have become smaller means that it is more difficult for internationally oriented companies to do business internationally. After all, they now receive less support abroad from Dutch banks. A European banking union is likely to mean entry of other European banks into the Dutch market, increasing competition. It may eventually lead to the creation of pan-European banks, which may facilitate international business. This would include a European deposit guarantee system, which might make people more inclined to deposit their savings in a foreign bank. This is currently an option too, but you are dependent on the German or Swedish deposit guarantee system, for example. That makes it more complicated and possibly scarier for consumers. A more level European playing field - where companies can also finance themselves more easily in one European capital market - would make the European economy stronger. Consumers and businesses would be better off.”