According to the Bundesbank, the weak German economy and global crises will weigh on German banks in 2024. Inflation has fallen significantly, the central bank writes in its September monthly report. “Nevertheless, there is still great uncertainty about future macroeconomic and geopolitical developments.” The risks of loan defaults are likely to continue to rise, making higher write-offs for non-performing loans more likely. In addition, new lending business remains subdued and there is pressure on net interest income. “Factors that burden earnings are likely to become more important for German credit institutions.”
The Bundesbank also warns of major global threats. “In addition, additional challenges remain due to digitization, climate protection and cyber risks. The resulting increase in investment needs will, in and of themselves, initially put a strain on the earnings situation of German credit institutions.” After a record year in 2023, the business environment will remain challenging this year.
Exceptional year for the industry thanks to increased interest rates
Last year, rising interest rates in particular boosted the banking industry and brought record figures to some financial institutions. According to the Bundesbank, the aggregate annual profit before taxes of German banks was 48.7 billion euros, almost 80 percent higher than the previous year and reached a high since 1999.
The interest surplus of German banks grew by 16.7 percent to 106.9 billion euros in 2023 following interest rate hikes by the European Central Bank – a record high in 25 years, according to the Bundesbank. The interest margin of the institutions has increased significantly.
The banks also became significantly more profitable: the much-watched cost-income ratio was at 59.2 percent, the lowest level in the last 25 years, due to the increase in operating income. The cushion from last year makes the Bundesbank optimistic for 2024: “The earnings of 2023, however, give the institutions a good basis for the necessary investments and the necessary risk provisions.”
© dpa-infocom, dpa:240917-930-234850/1
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