The above said, there may be cost-reduction measures banks have implemented that might not yet be fully reflected in their profit and loss statements, but we still believe that banks need to do more on the cost front. The scale of the challenge will require banks to reimagine their distribution channels and operating models, as well as evaluate consolidation or divestments for a more efficient scale—a theme that we will explore further in this series.

Moving into 2021: the future prognosis

Overall, the retail banking sector has performed better than in the global financial crisis, reflecting the more robust capital positions of banks post 2008–2009.

Nevertheless, we project that 2021 will be another challenging year for the European banking sector. While the recovery path and duration might differ across countries—depending on different vaccination rollouts and the extent or duration of government support—we expect that most European banks will not see a significant improvement in their profitability.

We project that European banks will return to their pre-COVID performance within three to five years, depending on the speed and magnitude of the overall economic recovery, and with significant differences in the recovery path between individual countries.

The past year has fundamentally altered the change trajectory for European retail banking. But with challenges come opportunities. The lessons learned in the global financial crisis paid off. Trust lost in the last crisis was regained last year. Retail banks repositioned themselves as partners to individuals and small businesses, helping them financially bridge several waves of lockdown, closed shops, unemployment, or part-time work. As we return to a “new-normal,” European economies will recover and banks have the opportunity to become the engine of the recovery. As with the last financial crisis, we anticipate that the European banking sector will emerge stronger and better in the wake of COVID-19.

Further articles in the series

This is the first of a five-article series to be published within the coming months. Article 2 will explore in more detail the issue of operating models and costs, and the likely impact on headcount, branch networks, and overall physical footprint. Article 3 will examine the significant role of digitization in the changing face of distribution channels and our prognosis on the retail branch networks across the continent. Article 4 will focus on the huge topic of how environmental, social, and governance (ESG) issues are emerging at the forefront of banking strategies and how ESG issues will shape the expectations of bank customers in this regard. And finally, Article 5 will focus on international credit. As the economic shocks of the pandemic start to ease, there will be continued strain on credit. However, we forecast that international credit will find a way through, often in new ways and forms, and enjoy a boom.

In all cases, we aim to bring informative insights into some of the key issues facing the bank sector now and into the future, and we look forward to rolling out the 12th Kearney Retail Banking Radar (RBR) series.