According to the economists at Allianz Group and Dresdner Bank, German banks are entering a new cycle in which they will catch up again with their international competitors. Whereas banks in the USA and in many European countries will struggle to improve their performance further, banks in Germany will soon see their efforts to date come to fruition, although plenty of work remains to be done. After last year’s mixed results, 2004 figures are likely to document this.
Germany’s banks: Overview and international comparison
The improved backdrop is not the sole factor pointing in this direction. With the emerging economic rebound, lending demand and capital market activities will pick up again. The positive boost from the economy heralds sustained increases in bank earnings.
Moreover, the German banking market is on the move: public-sector banks are under enormous pressure to adjust, the number of cross-sector cooperations is on the increase and the altered European competition framework is resulting in the growing presence of foreign providers. Market structures in Germany are gradually becoming more efficient – if below the possibilities a thorough overhaul of the three-pillar structure would offer.
But, first and foremost, the radical restructuring processes within the banks themselves have prepared the ground for better times. The major banks in particular can already point to impressive progress on the cost side (having trimmed administration expenses and slashed risk provisions). On the earnings side, new business models – risk-adequate lending, development of securitization markets, expansion of capital market business for corporate and private clients – all lay the foundation for a lasting boost to performance.