Friday, 31 May 2013

Redemption awaits the Dutch Banking system?

The mortgage system in Holland is unique. It is the only place in Europe where your mortgage interest is tax deductible whilst not paying any capital. In simpler language if you are looking to buy a house, the bank will decide, subject to conditions (income history and job security etc)., to raise the full capital and simply charge you interest which is tax deductible! The bank effectively owns the place but buys it in your name and under your signature. Consequently the banks can lend up to 5 even 5 and half times your annual income assuming of course all risk factors are taken in to account. Clearly one can see the advantages (Most people like the idea of ‘owning’ a house, and it can work quite well in a growth economy) but the system can have its colossal disadvantages. Let me explain a recent story that captured my interest published in a Dutch daily news article.

A man who had difficulty paying his interest payments got into around €15.000 in debt to the bank in back payments. The bank wanted to repossess the house to auction it. As demand in Holland is weak and house prices were falling, the borrower knew that the auction would be disproportionate to what he owed and that he would fall further into debt. It was estimated he would lose a further €50.000. (The loss in value of the house from the time of the purchase falls under the responsibility of the individual to repay and not the bank and this would work out as a debt of +/- €65.000) The colloquial terms the Dutch use are houses ‘under water’. He therefore went to court which was a first of such a case. The borrower won his case as the court decided that in fact if the bank auctioned the house the individual would be at a greater loss and it was simply unfair.

Sources in Holland inform us that more and more people are in this kind of ‘under water’ situation and felt that the banks were constantly putting profit before interests to their customers. No one trusted their banking sector but people lacked courage to do anything about it. Their opinion was that the banks were simply too powerful and that they needed to change their culture or perhaps the system required changing. 

Another Dutch person we knew currently had a really impressive business going with a great idea. He is providing a service where there was a real need. ‘We are booming’ he said. He also needed help from the Banks to help carry this growth. I asked him if in fact they were helping him. He responded they were being extremely difficult and simply not willing to help.

Stories of this nature are recurring more and more. It seems that everyone could be in a fix. The lawsuit can set a precedent in Holland. Clearly all this could get out of hand and Time MCG argues that it all adds to the fact that we need a positive culture change in the Banking sector not just in Holland but in Europe before some sort of battle guns may arise between differing societies versus our battered banks. Even the European Union is asking for a different attitude in our debt ridden countries.

Bankers we knew were certainly very good and in many cases geniuses but somehow along the way many have lost their talent, their true gifts their sense of purpose and in the end a sense of themselves. Is it the fault of the regulators or are we reverting to the same path as the previous lost decade? In our article on culture versus our itentity we spoke about our identity crisis and conflicting values linking this to our cultural problems in the current economic system further exasperating our lack of conscience, confidence and purpose. Arguably this may have a direct link to our inability to move forward. 
 
In truth it is no good really pointing fingers and somehow we must share part of the guilt of our past conduct and find solutions. Again what are our options? The retail banking sector in Holland could be sitting on a golden opportunity like in the UK even in Belgium and France. Most well balanced professionals we speak with now understand that a different mind-set is required instead of this ‘Ipseite’ and ring fenced approach which will only lead us to further problems and professional unease. 

When I lived in Holland, it was a service minded trading culture that had a great entrepreneurial spirit and always on the lookout for new ideas. (They speak their mind too!)  To help the banks revert back to a service minded attitude, we would encourage them to make a more determined and tangible effort in their mission statement and purpose in order to reach out to the general public in so far as the general public can understand or grasp. More efforts would need to be made regarding their core values and business principles making them more compatible to their services. SNS Real a well-known Dutch bank which has just been taken over is now making a concerted effort. ABN Amro requires further encouragement to help get away from the hubris of the past. The two of them are after all owned by the Dutch tax payer. This will lead to a more increased transparency, trust and a renewal of people belief that is so desperately lacking at the moment. For now Time MCG under our ‘Barometer Effect’ will have to classify these banks as still in the storm.

An idea of a tangible mission statement could be for example ‘Our mission is to make money work for small businesses as well as social, cultural and environmental change. Then follow on from this. In short it could be time for money to serve people and not to rule and in particular for those who look after it to help bring us into a new era.

The Netherlands is a country that could take onto this. Is it not time that we took our responsibility in hand in our leadership and to revert to the real needs in our societies? A need is about filling in a void that is beneficial for others. This is how our human nature works it is linked to our predominant human driver which is all about how we can provide value for others. Or what do people value? Is it not time for our banking sector to think along these lines and not the other way round? After all we would not want the Banks to go 'under water' would we?

‘To serve is to lead’

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