Germany’s fragmented banking sector stands
apart in the European banking landscape. Its large
private banks, the “Big Five” -Deutsche Bank
AG, HypoVereinsbank AG (HVB), Dresdner Bank
AG, Commerzbank AG and Deutsche Postbank
AG - account for a significantly smaller share of
the sector compared to other economies. There are
around 400 savings banks while of the 300-odd
private banks, around 120 are foreign banks with
branches in Germany. Data shows
that the top five banks together hold 12% of the
nation’s €1 trillion consumer lending market.
Historically, the country’s banking system has
been based on a unique three-pillar model
comprising private commercial banks, public
sector banks and cooperative banks. A recent
paper from the Centre for European Reform
states that savings banks control around 40% of
the banking market, while the cooperative banks
control around 30% of the market. Public sector
banks include savings banks or “Sparkassen” that
are organized on a regional basis and their head
institutions are known as “Landesbanken”. They
focus primarily on the economic developments
of their respective regions rather than profit
maximization. This philosophy appeals to the
ordinary consumer, especially during times of
stress. Local media reports suggest that in face
of the current financial crises, Germans are
turning towards these savings banks to keep their
savings safe. It is estimated that deposits at the
400-odd savings banks increased by more than
€1 billion ($1.4 billion) in the first two weeks
of October this year. However, the lack of
competitiveness of co-operative banks has long been a cause of concern both for the
German authorities and business.
According to an analysis by The Banker, in 2007
German banks overall managed to increase
profits as a percentage of capital, to 7.47% in
2007 from 4.67% in 2006. But, says The Banker,
this remains far behind the other large European
economies, “owing to low profitability in the
Landesbank and savings bank sectors.”
Key trends in Germany
- Consolidation
Consolidation is the main bug-bear of
the German banking industry. In order to
improve the profitability levels of individual
institutions, banks are under tremendous pressure to
consolidate and have been doing so over the
past decade. According to a 2005 paper by the
country’s central bank, Deutsche Bundesbank,
the number of banks declined from 4,177
to 2,160 due to mergers and acquisitions
between 1991 and 2003, by far the largest
decline in the European Union in that period.
Yet, Germany still hosts the most number
of banks in Europe and exhibits the most
fragmented market in the region. Savings
and co-operative banks account for more than
50% of the country’s deposit base and close to
70% of the savings deposits.
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