Eurogroup: Profitability private banking under strain

Private banking is one of the most competitive segments in banking and as a result pressure on profitability is very high. If private banks want to remain successful in the near future, they will need to adapt their strategy to the changing external and internal environments. At the same time, they must transform their operating models. This is evident from the “Private Banking Study 2012” research by Eurogroup Consulting.

In the report the consulting firm investigates the current state of private banking and presents an overview of best practices within private banking.

Profits under strain

The strain on profitability is a result of several external and internal factors. In the report Eurogroup Consulting identifies six key areas:

• Growing regulatory requirements require increasing efforts to implement and fulfil these requirements.
• Decline in demand for high-margin products due to defensive client behaviour.
• Changing desires of the new generation of private bankers result in different sales & marketing models.
• Operating and cost models of private banks are no longer aligned to current times of decreasing margins.
• Complicated IT infrastructures cause high IT costs and insufficiently support for innovation.
• A toughening external price competition leads to a new dimension of pricing.

Best practices for private banks

Based on a detailed analysis of the market and its own track record in the business, the consulting firm identifies eight best practices that can improve the profitability of private banks, through optimisation of income, costs or both.