The net profit of the Dutch banking sector in 2011 came out at EUR 7.8 billion; this was EUR 1.1 billion (13%) lower than in 2010. The return on capital of 6.3% was one percentage point lower, comparable with the average for the eurozone. Although the sector’s result is better than in 2008 and 2009, it remains below its pre-crisis level.
The modest rise in income was largely attributable to non-recurring income relating to the discontinuation of activities.
Although costs also increased, the pattern here is more favourable as the banks were able to reduce their operating costs by EUR 1.2 billion. As a result they improved the sustainability of their profits. At the same time, however, credit losses rose, and this resulted in a net EUR 1.5 billion increase in costs. The rising credit losses were reflected in higher loan loss reserves, which rose from EUR 7.2 billion in 2010 to EUR 10 billion in 2011. These credit losses were primarily attributable to losses on peripheral exposures and commercial real estate. Although high, loan loss reserves were still lower than in 2009, when EUR 13.6 billion was added.
Net interest income in 2011 was comparable to that of 2010 and, therefore, above the long-term average. The Dutch banking sector is primarily active in traditional banking services such as lending to businesses and private individuals. Interest income is consequently the sector’s single most important source of income. The share of total income accounted for by interest has increased since the start of the crisis.
The leverage ratio – defined as equity divided by total assets – came out at 4.3% at the 2011 year-end, broadly unchanged from the previous two years. Although the banks achieved a rapid improvement in their leverage ratios between 2007 and 2009 by reducing their assets and at the same time increasing their levels of capital, they have proved unable to maintain this momentum in the years since then. This is largely because of the failure to build up more substantial buffers. The Dutch banks’ capital buffers remained largely unchanged in 2011; the core tier 1 and tier 1 ratios at the end of the year were 9.6% and 11.9% respectively, compared to 9.6% and 11.8% in 2010. The sector had total assets at the 2011 year-end of over EUR 2,800 billion.