Ageing population challenges banks' revenue models

The DNB analysis, "The impact of an ageing population on banks," highlights how demographic shifts affect banks through various channels, including the economic environment.

An ageing society contributes to slower economic growth and lower interest rates, impacting banks' operational context.

Crucially, both the customer base and the banking sector's workforce are ageing.

Older households typically borrow less but hold more wealth, exhibiting distinct payment and investment preferences compared to younger generations.

They are also generally less digitally literate and more susceptible to digital fraud.

Within the banking sector, an ageing workforce presents challenges in retaining critical knowledge and expertise, potentially affecting operational efficiency and innovation.

This dual ageing trend necessitates strategic adjustments for banks to maintain stability and profitability in a changing demographic landscape.

An ageing population is set to pressure banks' traditional revenue models, heavily reliant on lending.

Slower economic growth and an older customer base are expected to gradually reduce interest income.

Financial risks may also rise, including credit risks from slower growth and market risks from public debt concerns in ageing countries.

While liquidity risks are currently decreasing, this trend could reverse.

Banks can adapt by diversifying their business models, offering more fee-based services like wealth management and investment advice, a strategy seen in Japan.

Developing new products for older customers, like services for gifts and inheritances, is also crucial.

DNB stresses managing these risks and investing in accessible digital services, alongside ensuring cash availability for all, particularly less digitally literate groups.