Growing competition and a possible property bubble are among the biggest risks facing German banks, the Bundesbank has warned as it said there had been no easing this year of the threats to the financial system in Europe’s largest economy.
German banks – including Deutsche Bank, Europe’s largest by assets, as well as Commerzbank, which needed a government rescue in the financial crisis – are part of a financial system that faces pressure from higher costs and fierce rivalry for customer deposits, Germany’s central bank said in its latest financial stability report.
The Bundesbank also highlighted remaining risks to German banks from the eurozone crisis, saying they had reduced ties to “peripheral” eurozone states but still had €200bn of exposure to Spain and Italy. The sovereign debt crisis remained the greatest threat to stability, the Bundesbank said.
The relative outperformance by German companies during the crisis has prompted the country’s banks to redouble their efforts to win corporate customers, while German savers are coveted because their deposits can ease funding stresses for banks.
Pointing to “hard competition” Sabine Lautenschläger, Bundesbank vice-president, said there was a question over whether there was “enough adequate business for all banks.” She renewed calls for banks to consider consolidation, saying it should not be “a taboo”.
Germany’s public-sector Landesbanken have been the most frequent target of calls for consolidation. While one, WestLB, closed in the financial crisis, others have generally resisted moves to merge. Low interest rates are also prompting many savers to invest in property in the hope of better returns. Price rises in some German cities were accelerating and “exaggerated” rises “cannot be ruled out”, the Bundesbank warned. Andreas Dombret, a Bundesbank board member, said: “That could considerably endanger financial stability.”
The bursting of property price bubbles in many European countries in the past five years has been one of the biggest problems for eurozone banks but Germany, where prices were relatively stable, is only now beginning to see rising property price inflation. Mr Dombret said prices for newly-built homes in the largest conurbations had risen 9 per cent in 2011 and the increase “seemed to have continued in the first half of the year”, he said.
Germany has almost €1tn of mortgage loans outstanding, but mortgage lending increased only 1.2 per cent last year, suggesting banks were not significantly ramping up direct property exposure.