You are here: Financial Institutions » Full text: Moody’s – Germany’s banking system outlook remains negative
The ratings agency Moody’s issued the following statement earlier today in connection with its ratings review of the German banking sector.
The outlook for Germany’s banking system remains negative, says Moody’s Investors Service in a new Banking System Outlook published today. The main drivers of the outlook are (1) margin pressure for banks, owing to intense competition, low interest rates and limited loan growth; (2) a weakening operating environment amid recessionary trends across Europe; (3) rising risk charges and deteriorating asset quality; and (4) many banks’ limited loss-absorption capacity.
The new report, entitled “Banking System Outlook: Germany”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release.
Moody’s says that intense competition and low interest rates are causing margin pressure that will likely further erode the banks’ already-weak revenues and profits over the 12-18 month outlook period. The banks are re-focusing on their domestic operations, which will reduce risk exposures but exacerbate structural pressure on earnings in the context of additional costs, weakening economies of scale and low loan-growth prospects. Uneven profitability across sub-sectors will likely persist, with savings banks and local cooperative banks benefiting from their strong retail franchises, while German wholesale banking will remain fiercely competitive.
Banks’ operating conditions will be challenging in the next 12-18 months, despite Germany’s so-far sound economic indicators (high employment, modest household leverage, and satisfactory overall corporate sector health). According to Moody’s central macro risk scenario for Germany (as commented in August), GDP will likely grow between 1%-2% in 2013. However, significant downside risks from the ongoing euro area crisis will persist in view of the German economy’s high dependence on other EU countries for its exports and the resulting economic interdependence with other European nations.
The rising risk charges in individual bank results in 2012 to date indicate that domestic asset quality is gradually deteriorating. Legacy exposures to stressed euro area countries and concentrations in highly cyclical sectors (such as commercial real estate and shipping) render many German banks vulnerable to a worsening of the sovereign debt crisis in Europe and to macroeconomic stress. Moody’s says that high balance-sheet leverage and low pre-provision profits will make it difficult for many German banks to cope with major (unforeseen) losses.
Subscribers can access this report via this link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_145492
About Guest Author
This page is a post from outside of Credit Writedowns' regular contributors.
Like us on Facebook
Follow Edward on Twitter
- The roots of the Italian stagnation
- Does The Secular Stagnation Theory Have Any Sort of Validity?
- The rise in periphery bond yields is sovereign debt crisis, round 2
- Eurocrisis Round Two, Blame the Germans Edition
- Is Japan Back In Recession?
- The Japanisation Of Europe
- Six Months of Nothing
- Everything you always wanted to know about gold
- Deleveraging, What Deleveraging? The 16th Geneva Report on the World Economy
- Rising global debt levels will trigger the next crisis
- Private credit overhangs and the business cycle
- Interview: On The Global Economy and Economics
- Country by country macro update, part 2, September 2014
- Country by country macro update, September 2014
- Is the ECB doing QE?
- Some thoughts on Scottish secession from the UK
- The Catalan Vote: Why It’s Time To Start Getting Worried About Complacency In Madrid
- What does a “good” Chinese adjustment look like?
- Income inequality, corporate inversions and financial engineering
- Divergence in ECB and Fed rate regimes will drive portfolio shifts
-  Middleton and Randazzo on bank capital and bank regulation
-  Predatory lending, IBM, Denninger on Apple and Magnus on Debt
- Oil: Economic lifeblood or disease?
-  Jim Rogers on Russia, US equities and commodities & Middleton on banks
-  Student Debtor PRISON! Plus Patrick Chovanec on China & Pippa Malmgren on Europe
-  Magnus on a new dollar bull market and Alpert on growing global weakness
- Jim Rogers on owning gold and real assets
-  Rick Rule on Natural Resources plus clips of Rogers, Hanke, Magnus, Alpert and Damodaran
-  Hong Kong protests, Pettifor on unsustainable debt and Mosler on US problems
-  Apple, Amazon and Raoul Pal on the financial Internet & Jim Bruce on the Fed