FINANCIAL PERFORMANCE

The past few years have been challenging for German banks. Along with the implementation of
extensive regulatory requirements, the consequences of the financial crisis and the implementation
of EU state aid procedures, market conditions have changed radically: ultra-low interest rates,
the emergence of FinTech and digitisation as well as changing customer behaviour. Nevertheless,
several parameters within the German banking market have remained stable – at least at
first glance.

German banks benefit from a large customer base of retail and corporate clients, with a €115 billion
revenue pool, stable in both composition and size over recent years. Despite high dependency
on interest rates, German banks have been able to absorb the period of low interest rates
surprisingly well, showing relatively stable net interest incomes of around €90 billion in absolute
and relative terms. It should be noted, however, that a continued period of low interest rates
is assumed to lead to a deterioration in absolute terms.

From a cost perspective, despite burdens imposed by regulatory requirements and inevitable
investments, German banks were able to mitigate increasing costs to some extent. Their risk
costs over the 2006 to 2016 period were comparatively low by international standards. Over
the same period, German banks’ operating costs increased by only 1.4 percent per year on
average – less than was observed with their peers in Spain, France or the USA. So far, so good.