Frankfurt For German banks, construction financing has been one of the most important sources of income in the private customer segment for years. However, due to high inflation and rising interest rates on loans for the purchase or construction of real estate, this important business is now deteriorating noticeably.
In December, customers would have taken out ten-year mortgage lending at an interest rate of less than one percent, now they are paying three percent or more, said Philipp Gossow, who heads sales in Deutsche Bank’s private customer business, on Tuesday at the Handelsblatt conference “Future Retail Banking”. in Frankfurt. “That changed incredibly quickly in three months.”
The result: many customers hesitate to buy real estate. There is clearly “a slowdown” in construction financing, said Thomas Schaufler, Commerzbank board member for private customers. In addition to the higher interest rates on loans, the fact that the ongoing household costs of potential property buyers have risen due to inflation also plays a role. Many customers therefore asked themselves: “Is that still possible?”
Added to this is the fact that real estate prices have not fallen noticeably despite the rise in market interest rates, said Schaufler. “Real estate prices are not going down to the extent that people say they’ll even out.”
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For these reasons, private customer manager Marion Höllinger from Hypo-Vereinsbank (HVB) is preparing for falling volumes in the construction financing business. “There will be customers who say: I just don’t want to put up with these installment burdens in this environment,” says Höllinger. In contrast, there are fewer problems with existing real estate financing.
Many customers have secured a 30-year fixed interest rate when financing their property, said the HVB board member. On the other hand, customers for whom the fixed interest rate expires in two or three years were “maximum thoughts”. They are often already trying to find long-term follow-up financing today in order to have a “plannable installment size” for the future.
“Real estate prices are not going down to the extent that people say they’ll even out.”
(Photo: Willi Nothers for Euroforum)
Liane Buchholz, President of the Savings Banks Association of Westphalia-Lippe, assumes that real estate financing will start to stutter by 2023 at the latest. “Today, for the first time in many, many years, we are experiencing that there is no longer any demand for building plots made available by the municipalities,” she said at a banking conference on Monday
>> Read here: Where real estate prices continue to rise and where not – an overview
She is even more concerned that savings bank deposits are falling. Because of the high inflation, 40 percent of savings bank customers could already save no more money, said Buchholz. By the end of the year it could be more than 60 percent.
At Deutsche Bank, Commerzbank and HVB, however, deposits have so far been stable according to their own statements. Because of the negative interest rates of the European Central Bank (ECB), the financial institutions have hardly earned anything with them in recent years. However, due to the imminent turnaround in interest rates, deposits are now becoming more attractive again.
Several financial institutions have already abolished negative interest rates for their customers or intend to do so as soon as the ECB raises interest rates. There are also first signs that a fight over deposits could break out again among the banks.
“We are open to new money, and we are now in the process of attracting deposits again,” said manager Laura Wirtz of ING Germany.
How much and how quickly this happens depends primarily on how much the ECB raises interest rates. Wirtz assumes more moderate increases and therefore does not believe “that we will already see positive savings interest in the masses this year”.
Commerzbank is almost done with branch closures
There was also much discussion at the Handelsblatt conference about the future importance of branches. Commerzbank private customer boss Schaufler announced that his institute has now almost completed the reduction of the branch network to 450. “There are one or two branches that are still being closed, but otherwise we’re done,” he said. Germany’s second largest bank announced in early 2020 that it would reduce the number of branches from 790 to 450.
Schaufler did not rule out further site cancellations. “We now have a set-up that we can imagine serving our eleven million customers with,” he said. However, if it turns out that customers had gotten so used to doing all banking transactions digitally during the corona pandemic and no longer visited the branches, then other branches would be closed.
The number of bank branches in Germany continues to decline. While there were still more than 50,000 branches 20 years ago, according to the Bundesbank there were still almost 22,000 at the end of 2021 – most of them from savings banks and Volksbanks.
The consulting firm Consileon expects the number to drop to 16,000 nationwide by 2030. “The branch deaths will continue,” said Ralph Hientzsch, managing partner of Consileon in Frankfurt. For customers, branches are only important if banks offer advice there that is linked to online banking, banking via app and telephone service.
Deutsche Bank is also working on changes to its branch network: In the future, Deutsche Bank and Postbank, which belongs to the financial institution, will increasingly use a common branch infrastructure and be represented together in one building. Ten such locations are in the planning stage, said manager Gossow.
The Deutsche Bank and Postbank brands want to maintain the largest German money house: “We have two brands that are positioned diametrically.” The Deutsche Bank brand currently has around 400 branches. Postbank has around 650 branches, by the end of 2023 there should be 550.
In general, banks are faced with the challenge of interlinking online banking, telephone service and branches. HVB has already implemented this and is now starting an “offensive in the securities business”, as Höllinger said. The institute starts a free securities account for this purpose. The offer is intended for self-deciders who also want to use advice.
HVB currently has around 300 branches. You look at the profitability of the locations regularly and check which model fits, said Höllinger. There is currently no plan to “close a certain number of branches”.
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