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Will 2025 Mean A More Competitive European Banking Sector?

Amid falling interest rates, increasingly stringent regulatory frameworks and growing geopolitical fragmentation, the banking sector is facing a challenging 2025. But with a well-defined strategic focus, could 2025 actually be a turning point?

Bringing together top banking executives, leaders from financial institutions and international regulatory bodies at the 20th IESE Banking Industry Meeting, some key themes emerged when it comes to the current state and future outlook of the banking sector in Spain and across Europe. But one unifying viewpoint came out on top – that the sector’s competitive future hinges on five key pillars: growth, profitability, scale, innovation and digitalisation.

Purposeful Growth
Today, growth is no longer solely about expanding the balance sheet. It also entails gaining economic and social relevance, supporting the broader business ecosystem, facilitating access to credit and rebuilding public trust. As reindustrialisation and the energy transition transform the economy, the banking sector has a structural role to fulfil. With strong indicators of growth, employment and credit demand, Spain presents an opportunity to consolidate a more interconnected, adaptable and long-term-oriented model.

Profitability as the Basis for Sustainability
Profitability is crucial for maintaining the stability of the financial system and preserving investment capacity in a low-interest-rate environment. Amid rising regulatory pressures and intensifying competition from new players, capital management must be rigorous and operational efficiency must not compromise service quality. Striking the right balance between profitability and resilience has become a strategic imperative.

Scale to Compete Globally
Scale has evolved from being a desirable attribute to a critical source of competitive advantage. In its various forms, consolidation provides a means to enhance operational efficiency, invest in digital transformation and respond more agilely to emerging regulatory requirements. However, achieving this potential requires a more integrated framework. The absence of a fully functional banking union in Europe remains a significant barrier to the sector’s competitiveness across the continent.

Innovation as a Strategic Mindset
Innovation is not solely about technology, it is also a mindset. It involves anticipating change and reimagining the client relationship. To innovate is also to simplify, personalise and deliver added value with efficiency. Institutions that embed innovation into their organisational culture will be better positioned to differentiate themselves and meet the expectations of tomorrow’s clients.

Digitalisation as a Structural Advantage
Digitalisation can no longer be limited to customer-facing channels. It must extend across the entire value chain — from onboarding to compliance. Leading banks are those that leverage data, automation and personalisation. This is especially true in cybersecurity, where effective coordination among key areas, including technology, legal and communications, is just as crucial as technical safeguards.

Beyond the five strategic pillars, the importance of banks playing a proactive role in Europe’s economic transformation cannot be understated. Financing critical infrastructure, supporting the energy transition and enabling reindustrialisation require closer collaboration among financial institutions, public administrations and institutional investors. Sustainability should not become a procedural burden but it should catalyse accelerating investment. Achieving this requires simplifying environmental, social and governance frameworks, reducing operational complexity and promoting stable criteria that channel capital towards high-impact projects. Banks possess the knowledge, experience and execution capabilities needed to lead this next phase.

At the same time, uncertainty has become a constant in the financial environment. Geopolitical volatility, regulatory pressure, cyber threats and rapid technological change are no longer isolated disruptions — they form part of everyday decision-making. In response, the most prepared institutions are strengthening their ability to anticipate change, adapting their risk management frameworks, and developing cross-functional responses that integrate business, technology, legal and communications. Competitive advantage will no longer come from reacting quickly but from foreseeing change, adapting strategically and maintaining stability amid shifting conditions. In this new cycle, resistance will not define leadership — transformation will. change are no longer isolated disruptions — they form part of everyday decision-making. In response, the most prepared institutions are strengthening their ability to anticipate change, adapting their risk management frameworks, and developing cross-functional responses that integrate business, technology, legal and communications. Competitive advantage will no longer come from reacting quickly but from foreseeing change, adapting strategically and maintaining stability amid shifting conditions. In this new cycle, resistance will not define leadership — transformation will.