In the coming 3 years banks in Europe will have to realize massive savings of €40 to €70 billion. As a result, banks are quickly trying to identify cost saving areas and implementing massive cost reduction programs. The key question is: where will the cost savings be realized? According to a study from Roland Berger, by far the largest part of the savings will be realized through massive lay-offs. By firing thousands of employees, the salary burden of banks will fall drastically, accounting for approximately 35% of the total required savings.
In the report ‘Cost Reduction in the Banking Sector’, the strategy consulting firm breaks down the cost structure of banks into five categories. The costs for employing employees, both in front office and back office, account for 48% of total costs. The remaining costs are relatively equally shared across support function (IT, HR), real estate and external costs (e.g. spending on consultants, marketing). Roland Berger subsequently analyzed the bottom-line impact of each of the savings in relation to the total savings target. Reduction in staff, accounts for 35% of savings, followed by a reduction in external costs (22%) and improved efficiency in IT management (19%).
Photo Roland Berger - Banking Study 1
Cultural change important
According to Mark de Jonge, partner at Roland Berger, banks are facing a major challenge. “The challenges banks face are not to be underestimated and should be embraced by the bank’s management. It is really about a cultural change and especially in banking this is not easy. There is little time and too much pressure from the market and society to let banks play an important role in society’s wellbeing. It is of great importance that banks start working on cost transformations”.