Saying shipping loans and too many bank branches are some of the very real problems they are currently facing, analysts have highlighted that Germany’s lenders are still not out of the woods, even with the Italian banking system in the spotlight.
Industry experts believe German officials have a problem of their own as federal elections approach even though they repeatedly tell EU members from the south of Europe to restructure their banking systems.
“Germany is overbanked, too many banks, very little consolidation has taken place,” Carsten Brzeski, chief economist at ING Germany, said to a television channel on Wednesday.
According to Commercial Banks Guide, an industry website, with over 700,000 employees, there are approximately 2,400 separate banks with more than 45,000 branches throughout the country. Brzeski explained that the cost income ratio for banks increases because of this.
Cost-to-income and leverage remain high in Germany, the International Monetary Fund (IMF) warned last May.
“Low profitability reflects structural inefficiencies, persistent crisis legacy issues, provisions for compliance violations, and the need to adjust to the new regulatory environment,” the IMF said in the report last May.
The reliance on the shipping industry for many banks seems to be another problem.
“I would point towards some specific issues with asset quality: Shipping is one of the priorities of the single supervisor, the ECB (European Central Bank), for next year,” Gildas Surry, senior analyst at Axiom Alternative Investments, said when citing the biggest problem for the German banking sector.
The shipping industry has become shaky and the long-term loans became a problem for many institutions dependent on this sector even though loaning to the shipping industry before the financial crisis was a stable investment.
For example, HSH Nordbank had to be rescued by two German states in 2009 even though it was once the biggest shipping lender in the world. In order to clean up its balance sheet, the bank has agreed to sell its loan portfolio worth 1.64 billion euros ($1.86 billion). This has to be sold before the end of February 2018.
“Many banks, as the entire economy, have missed the train of digitalization and need to invest big time now,” Brzeski added.
“With the need for investments and the pressure from low interest rates, the pressure on many banks has increased. Do you hear politicians talking about it? No, not a topic which will win elections,” Brzeski said.
However, allegations that the loose monetary policy of the European Central Bank as being the major drag on the German banking system by the German officials as they have focused on that central bank.
The ECB needs to tighten its policy, which is also leading to an increase in Germany’s export surplus, Wolfgang Schaeuble, the German Finance minister, has said on a few occasions.
“Lower and flatter yield curves are compounding these issues by gradually eroding margins, especially in smaller retail banks,” the IMF recognized last May.
(Adapted from CNBC)
Categories: Economy & Finance, Strategy, Sustainability, Uncategorized
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