BVR expects profits to fall for cooperative banks

Logo of the Volksbank Cologne Bonn

The Federal Association of German Volksbanken and Raiffeisenbanken (BVR) commented on the annual financial statements on Tuesday.

(Photo: imago images/Manngold)

Frankfurt Germany’s cooperative banks expect worse results in the current year. “The outlook for the current financial year in the banking business is clouded by the abrupt rise in interest rates and the weakening economy,” said Andreas Martin, board member of the Association of German Volksbanken and Raiffeisenbanken (BVR), on Tuesday in Frankfurt.

“Overall, we expect a significant drop in earnings for the cooperative financial group compared to the 2021 financial year,” he said. Martin did not want to give specific figures. However, BVR board member Daniel Quinten expects risk provisions for possible loan defaults to rise to around EUR 900 million, after an increase of EUR 337 million last year.

According to BVR President Marija Kolak, one of the biggest concerns for future economic development is high inflation. “It would be a fallacy to hope that the rise in prices can be offset by sharp increases in wages and salaries. This would only increase the pressure on margins in many industries, leading to further price increases and thus entrenching inflation,” she said.

Kolak is also worried about imminent gas bottlenecks: Inflation would get a new boost if the delivery restrictions on gas imports were to come to a head again, she said. “If the availability of gas is reduced to such an extent that there is a bottleneck in the economy, there is also the additional risk of a severe recession.”

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Kolak now sees the European Central Bank (ECB) as having to curb the rate of inflation: According to the BVR President, the central bank should not only raise interest rates by 0.25 percentage points at its next meeting on July 21, as announced, but by 50 basis points increase, thereby “sending a clear message to the markets that it is determined to counter inflation”.

In 2021, the cooperative financial group had increased its pre-tax profit by almost 46 percent to around 10.5 billion euros compared to the previous year. The BVR explained that this was due to growth in day-to-day business and “a significant reduction in the risk provisioning result”. While loan loss provisions had been increased to a good EUR 2.3 billion in the previous year, this item has now increased as a result of reversals.

The construction financing business, one of the most important sources of income in the private customer segment of German banks, is still “quite lively,” said Kolak. She couldn’t see a downward movement. However, it remains to be seen how the interest rate turnaround will continue to solidify.

Because of the high inflation and rising loan interest rates for the purchase or construction of real estate, this important business has already deteriorated noticeably for some banks. Last week, Commerzbank private customer board member Thomas Schaufler said that there was clearly “a slowdown” in construction financing.

The financial group includes 770 Volksbanken and Raiffeisenbanken (814 in the previous year), the Sparda banks and the DZ-Bank Group.

More: Volksbanks set up companies for new business alongside traditional banking.

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