Frankfurt Germany has more banks than any other country in the European Union – but surprisingly few branches in relation to the number of inhabitants. This is shown by statistics from the European Central Bank, which the Handelsblatt has evaluated. According to this, there were still 24,100 branches in Germany at the end of 2020. This means there are around 290 branches for every million inhabitants. The average value within the euro zone is 346 branches per million inhabitants.
The front runner in the euro zone is France with a good 32,000 branches. There are as many as 480 bank branches for every million people. In countries such as Italy and Spain, whose financial institutions have undergone several far-reaching restructuring rounds in recent years, there are more branches related to the population.
In Germany, the banking sector has been on a downward path for years: since 2007, the local credit institutions have given up around 15,677 of their locations, which corresponds to a decrease of 40 percent. The most significant decrease was in the pandemic year of 2020, when around 2,500 branches disappeared.
From the point of view of Christiane Weiland, head of the “Business Administration – Bank” course at the Baden-Württemberg Cooperative State University, this development does not play a major role: “The number of branches is falling significantly for good reason – and it is because of the increasing digital access less and less meaningful, especially since the importance of cash is declining. ”
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A survey by the research department of the “Economist” of around 300 bank managers worldwide even showed last year that a majority assumes that branch-based business models at banks will die out completely in the next five years.
Savings banks and banks are thinning out their branch network year after year.
(Photo: imago / Steinach)
But there are also critical voices, as not all customers can and do not want to use digital channels: “In Great Britain, a market that is dominated by five large institutions, the banks have withdrawn too much from the area,” says Andreas Pratz, partner at Strategy &, the strategy consultancy from PwC. Almost every second branch there has closed in the past five years, reported the British consumer organization Which ?. “That sparked a political debate there about minimum benefits,” he warns.
The UK government has announced its intention to protect the future of cash and is urging, among other things, that customers can withdraw cash in shops even if they are not shopping there. The British ATM network Link announced in December that, after a one-year pilot phase, it would now introduce such a network for “Cashback without a purchase” nationwide.
For many Swedes, too, the trend towards electronic payments is now going too far. The country, which is regarded as a pioneer for an almost cash-free society, introduced a law last year that is intended to secure a kind of basic financial supply for the population: The law obliges large banks to ensure that no more than 0.3 percent of the population is more than have to travel 25 kilometers to withdraw cash. A maximum of 1.22 percent of the population should have to travel more than 25 kilometers to be able to deposit money into a bank account.
In Sweden, the branch network with 142 locations per million inhabitants is only half as dense as in Germany. However, it is foreseeable that even more branches are likely to disappear here, especially in rural areas. “In addition to the size of the company, the size of the branches is a growing problem,” explains Strategy & Partner Pratz. “Many branches of German banks are too small, especially in this area.” It is an important task to bring even more customers with you to online and mobile banking – “at least a third of the population has not yet used them,” he says.
The comparatively low branch density stands in clear contrast to the number of independent banks and the number of employees in Germany. Since 2007, every fourth bank may have disappeared and every sixth job may have been lost. But that is below the average for all euro countries. With around 1,450 banks and around 575,000 employees, there are more financial institutions and more bankers in the Federal Republic than in any other country in the euro zone, also in terms of population.
According to experts, the number of financial institutions is less meaningful than the number of employees. “The above-average number of bank employees in relation to the size of the population is remarkable,” says Weiland. She considers the decentralized banking system in Germany, which is dominated by many savings banks and cooperative banks that are only active in their respective region, to be the reason.
But from Weiland’s point of view, this small division is a problem. “Above all, the long-term increasing complexity of regulation with the resulting requirements for risk management, regulatory compliance and reporting have led to a disproportionate increase in staff in this area at smaller institutions,” she says. In the long run, this could have a negative impact on profitability.
Strategy consultant Pratz sees it similarly: “The biggest challenge facing the banking industry is that many institutions are too small,” he says. “The background to this are both sales and regulatory requirements that require an increasing minimum size,” he explains.
So far, however, the regional institutes are doing surprisingly well. According to a study by the management consultancy Bain, savings banks and cooperative banks achieved higher returns on equity than Landesbanken and major banks in Germany in the past two years.
And that although – or maybe because – the regional institutes do not excel in terms of fighting conditions, as strategy consultant Pratz analyzes. “Cooperative banks achieve earnings of more than 700 euros per customer, savings banks more than 500, commercial banks 300 to 450 euros,” he says. The margin pressure in Germany is not triggered by cooperative banks or savings banks, but by new, pure online providers and comparison portals.
From Weiland’s point of view, however, the current profitability is a snapshot: “Regional institutes with traditional business models are still more profitable on average than big banks. Some future challenges, such as digitization, are likely to be easier to cope with for large institutions than for decentralized banking groups, ”she warns.
However, from the perspective of Volker Brühl, Managing Director of the Center for Financial Studies (CFS), the current earnings situation does not indicate that there are generally too many banks in Germany. “Overbanked would mean that there are so many competitors that none of them make any more money,” he says. But that can’t be said in general terms. The German market is highly competitive, but successful institutes could certainly earn money in most business areas such as private customer business, business with small companies or business with large international companies.
“I would most likely speak of a tendency towards overcapacity in the larger medium-sized companies,” says Brühl. There, competition between domestic providers such as Deutsche Bank, Commerzbank, DZ Bank and Landesbanken on the one hand and foreign banks on the other is increasing massively. From his point of view, this is not a general problem: “I only see possible structural overcapacities in the German banking industry in a few areas. Rather, our remaining big banks have size disadvantages in an international comparison. “
From the scientist’s point of view, this has an impact above all in the competition for large corporate customers: “The only German institute that can also offer more complex capital market products is the Deutsche Bank,” says CFS managing director Brühl.
Even in their home market, major German banks are showing little impact: while in Germany the five largest banks have a market share of just 34 percent, in Spain it is around two thirds. In France and Italy, the top 5 institutes share half of the market.
“The fragmented market means that we do not have any institutes that have dominant market shares and can exploit economies of scale in the form of economies of scale. That is why we would say that consolidation at home is an important lever, but you probably have to think that clearly for Europe now, ”says Bain’s head of Germany, Walter Sinn. Strategy & partner Pratz is even convinced: “For large banks, the home market is not necessarily the most important, but the question of whether they are large and competitive enough for the European market.”
From Weiland’s point of view, however, it is also important to pay attention to the needs of the real economy for banking services. A rough indicator can be the growth of the banks’ total assets in relation to economic output. In the run-up to the financial crisis in 2008, for example, the total assets of the banks in relation to economic output in Germany rose from 180 percent to 360 percent. “This development was definitely unhealthy,” says the business administration professor.
At first glance, the development after the financial crisis appears less suspicious: the bank balance sheets grew by 12.5 percent, while the gross domestic product rose by 32 percent. “What is not taken into account in such considerations is that some banking services are now also provided by non-traditional actors, for example in payment transactions or in the credit sector,” she says.
There is one other point that worries her: “At the moment, banks are again struggling with unhealthy investment pressures,” she says. This is due to the fact that many institutions have disproportionately high customer deposits that they could not use to the same extent for traditional lending business. The reasons for this are the low interest rate phase in the euro zone and the savings rate, which rose again significantly during the pandemic. “That leads to rather atypical activities such as real estate investments,” warns Weiland.
There was already a phase in which banks invested their surplus funds in “credit substitute transactions” due to a lack of typical business opportunities: At that time, Landesbanken in particular, but other institutions as well, bought American mortgage securities. Not a good deal, as the financial crisis showed a few years later.
More: Why German financial institutions cannot avoid mergers.