Much has been written about the challenges facing banks. This has been a recurring debate since the outbreak of the crisis, as many of these challenges focus precisely on its consequences, such as complex and endless regulation and strict supervision by the authorities. Other challenges, such as high competition and the digitalization of the financial business, represent a new test of the sector’s resilience. There is no doubt that banks will overcome all these challenges. However, it is true that there are other structural factors that warrant reflection, and perhaps one of the most relevant is the demographic factor.
Most developed countries face a double risk regarding their population: a future decline and an aging demographic. This phenomenon will have major consequences for society and will, in turn, impact public finances and the sustainability of the pension system. Similarly, banks, as part of society, can also be significantly affected. Demographic factors lead to, for example, lower interest rates and a flattening of the yield curve. While the current extreme situation is exceptional, the normalization of interest rate levels and the slope of the curve will likely remain far from the levels seen before the crisis.
The banking sector is aware of this and is seeking solutions. This is why it looks to Japan, where the demographic problem is already more of a reality than a threat. The declining weight of banks within the Japanese financial sector as a whole, the problems faced by small entities—focused on local business—and the drop in the loan-to-deposit ratio are direct or indirect consequences of the demographic effect. In the Land of the Rising Sun, the banking sector has taken on more risks, largely international ones, and has reduced costs while carrying out consolidation. All of this has yielded good short-term results, although it has not fully resolved doubts about the future.
