German banks are making progress, but more slowly than their European competitors
(Photo: Karl-Heinz Spremberg)
Federal Finance Minister Christian Lindner is making the local banks responsible. The FDP politician wants the industry to secure the liquidity of the German economy despite all the current trouble spots and enable investments even in this difficult situation – just like in the pandemic. During the corona crisis, the banks were actually part of the solution – but also and above all because the state prevented a wave of corporate bankruptcies and thus loan defaults with gigantic aid packages.
However, the financial capacity of the state is limited. And nobody knows how long this crisis will last. That depends on too many variables beyond the control of managers and Western politicians.
One cannot accuse the German banks of not using the past few years. According to a study by Bearingpoint consultants, in 2021 the institutes achieved a return on equity of at least 4.5 percent. This is the best result since 2016.
But it is also true that institutions are still a long way from earning their cost of capital. Profitability is well below the European average of around eight percent.
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There are a number of reasons for these deficits. Two of the most important: First, many banks are still undergoing restructuring. Secondly, the transformation towards digital business models is therefore progressing much more slowly than, for example, at Scandinavian institutions.
There is no doubt: Germany’s banks are able to act. But unfortunately they are not as capable of acting as Finance Minister Lindner would like – shortly before one of the most difficult tests for the domestic economy in the history of the Federal Republic.