Kearney report reveals sharp slowdown in European retail bank income
Leading consultancy Kearney has today released the latest data from its annual European Retail Banking Radar, revealing that retail banks have experienced a significant slowdown in income growth, which has dropped to just 2.9% in 2024, compared to the 18% growth seen in 2023. This shift signals a return to a more moderate growth environment, as higher interest rates cool and consumer confidence softens.
Slower income growth and rise of fee income
Retail bank income grew by just 2.9% in 2024, down from 18% in 2023. Fee income now accounts for over two-thirds of total growth (72%), with a year-on-year increase of 5%. This growth was fuelled by higher transaction volumes, increases in fees on accounts, and a strong performance in asset management and insurance. As traditional interest-based revenue streams face continued pressure, banks are finding new ways to boost profitability.
Cost control and efficiency for sustainability
A cost to income ratio of below 40% was almost unheard of in retail banking in prior years, yet in 2024 we saw Portugal reach an average 32% across national banks, whilst Poland saw a 35% average cost to income ratio. Still, with interest income under pressure, retail banks must focus on cost control operational efficiency, and the adoption of AI to maintain margins. Shifting toward non-interest revenue streams and streamlining operations will be crucial to long-term sustainability too. The ability to adapt to this changing environment will be key to ensuring continued success.
Retail banking income Retail banking income plateaus, but profitability hits record high
Although income growth has moderated, profitability continued to improve across European retail banks. Profit per customer rose to a record €238 in 2024, up from €229 in 2023 and marking a 50% increase since 2019. This strong performance reflects banks’ ability to maintain margins through disciplined cost control, enhanced operational efficiency, and a strategic pivot toward higher-margin, fee-based products such as asset management and insurance.
Regional leaders
Switzerland remains Europe’s most profitable retail banking market. However, Kearney’s research reveals that Scandinavian banks are gradually closing the gap, nearing €1,000 per customer. At the same time, Spain and Italy are performing strongly at nearly €900 per customer, thanks to improving market positions and diversified income streams. On the other side, the high net interest income share in the financials of UK banks will make growth challenging in the coming year.
Managing risk exposure will be a top priority this year, resulting from weak economic growth, record-high US tariffs and low consumer confidence. In Poland, Spain and France, banks have set aside more than 10% of revenue to anticipate new risks of loan default. In Spain, banks have allocated over €100 per customer to mitigate risk as these macroeconomic headwinds continue.
Roberto Freddi, Europe lead, financial services and partner at Kearney, comments: “Retail banks are navigating a challenging landscape marked by macroeconomic uncertainty, with factors like US tariffs and weaker consumer confidence putting additional pressure on profitability. With income growth slowing to 2.9% in 2024, it’s clear that the previous growth dynamics are shifting.
“To stay ahead, banks must focus on operational efficiency, streamline their operations, and double down on digital investments. Technology will be key to reducing costs and improving customer experiences. Equally important is managing exposure to risk in an increasingly volatile environment. Those that can balance efficiency, innovation, and careful risk management will be the ones best positioned to thrive in the years ahead.”.