What an ageing population means for banks

The Netherlands now has more people aged 65 and over than young people under the age of 20, and the number of people in the older group is set to rise further in the coming decades. The DNB analysis ‘The impact of an ageing population on banks’ shows that population ageing affects banks through various channels. For instance, it affects the economic environment in which banks operate, for example by contributing to slower economic growth and lower interest rates.

Both customers and staff are ageing

The customer base of banks is ageing. This has important implications, as older households generally borrow less than younger ones. Older people also tend to hold more wealth and have different payment and investment preferences than younger generations. Older customers are also generally less digitally literate and more vulnerable to digital fraud. The workforce in the banking sector is also ageing, which brings challenges such as retaining critical knowledge and expertise.

Implications for banks’ revenue models

Population ageing may put pressure on banks’ traditional revenue model. At present, Dutch banks rely heavily on the income they generate from lending. A decline in lending, driven by slower economic growth and an ageing customer base, is expected to gradually reduce interest income.

At the same time, ageing might affect financial risks to which banks are exposed. Consider increasing credit risks resulting from slower economic growth, or heightened market risks due to concerns about rising and potentially unsustainable public debt in ageing countries. For the time being, liquidity risks are decreasing because most older people are not yet drawing down on their assets, but this may change if these assets are consumed in the future.

Developing new services

Banks can respond to demographic changes by diversifying their business model, for example by offering more services for which customers are willing to pay such as wealth management and investment advice. This shift is already visible in countries such as Japan, where some banks derive a larger share of their income from these kinds of fee-based services and less from traditional lending. In addition, banks can develop new products and services tailored to the needs of older customers, such as services related to gifts and inheritances. At the same time, it remains essential to manage the risks associated with an ageing population effectively and to continue investing in digital services that are both accessible and secure.