Dutch Central Bank: Country's Banking Industry Too Large, Needs More Diversity

By Archie van Riemsdijk

The Dutch banking industry, dominated by just a few large banks, needs to become more diverse, more competitive and smaller than it is now, the Dutch central bank said Thursday, in a review of the sector.

The three major Dutch retail banks--Rabobank, ING and ABN Amro--have diversified their activities over the past decades, but each did so in exactly the same way, Jan Sijbrand, the director of banking supervision at the central bank, said.

"When one of them entered the U.S. mortgage market, they all did. If one of them bought a Polish bank, they all did. If one of them started a leasing company, they all did," he said. This behavior seemed inspired by the idea that it's not a problem to fail in a particular market, as long as major rivals failed too, Mr. Sijbrand added.

As a result, all three banks would be affected, if one of their markets were to run into trouble. "One might ask, what good this type of diversification brings," said Mr. Sijbrand.

One of the reasons to increase competition in the Dutch retail banking, is that the major banks behave as a typical oligopoly, Mr. Sijbrand said. This means they only make a move, when their market share is under pressure. "If market shares are stable, they don't feel a need to grow it by lowering prices. This means margins remain high," he added.

The Dutch central bank aims to shrink the size of the Dutch banking industry, notably its large residential mortgages portfolios which surged in the decades before the financial crisis, by removing fiscal and other stimuli.

At the same time, foreign and innovative lenders are welcomed to enter the Dutch market, the regulator said.

Write to Archie van Riemsdijk at [e-mail]