New sources of income: Banks are tightening interest rates

It is bad news for borrowers: In a survey by the auditing and consulting firm EY, more than every second bank stated that it wanted to adjust its credit conditions upwards this year.

52 percent of the 120 financial institutions surveyed, including eleven fintechs, assume that corporate loans will become more expensive.

In the case of real estate loans, it is even 57 percent, which is also due to the measures taken by the Federal Ministry of Finance, the financial supervisory authority Bafin and the Bundesbank to curb speculative excesses on the market for residential real estate through additional equity buffers by the banks.

These aim to make credit more expensive.

According to EY, hardly any bank manager expects interest costs for customers to fall.

In addition to looking for income, the banks also have to react to the changed interest rate and inflation environment.

On the bond market, concerns about inflation and expectations of a tighter monetary policy have fueled interest rate dynamics, the impact of which can now be felt more and more clearly.

While the yield on the ten-year federal bond was still minus 0.4 percent in mid-December, it scratched the 0.8 percent mark on Monday.

That is an interest rate difference of 1.2 percentage points.

As the latest “EY Bankenbarometer” shows, 30 percent of bank managers expect more restrictive lending to companies.

Only 6 percent expect the opposite development.

The assessment of business prospects in business with corporate customers is encouraging: 86 percent rate them as good or very good.

Fees keep rising

Despite the confidence in this business area, private customers are threatened with further harm in the form of new fee increases in addition to higher interest rates for real estate loans.

Already 15 percent would have increased the fees for checking accounts this year.

Another 34 percent planned to take this step.

According to the EY survey, transfers have become more expensive at 12 percent of banks, and 28 percent are currently preparing for this.

"In recent years, institutions in Germany have had to learn how to get along in a low-interest environment and get by with significantly lower interest income than in the past," said Thomas Griess, Managing Partner Financial Services Germany at EY, in the press release.

At the same time, regulation is tightening.

The bottom line is that it is becoming increasingly difficult to operate profitably.

"So the banks are still thinking intensively about new sources of income," he is convinced.

Branch downsizing continues

You also keep an eye on the cost side.

In the course of digitization and the shift to online banking, the branch network has been thinned out for years.

But there is no end in sight: 80 percent of the bank managers surveyed expect the number of bank branches in Germany to fall by at least 20 percent by 2025.

"Corona has accelerated the rate of branch deaths again," says Robert Melnyk, Head of Banking and Capital Markets at EY.

As a result of the pandemic, digitization has also made a big leap in the private customer business, and the transformation has been significantly advanced.

Accordingly, significant parts of the branch network are now under scrutiny at many banks.

According to Melnyk, branches at 25 percent of the banks are to be closed due to corona.

“One lesson we have learned from the pandemic is that it can also be done digitally.

Customers are more and more willing to do their banking online,” adds Melnyk.

29 percent of the banks are dealing with downsizing.

They expect the number of employees to decrease in the next six months.

At the same time, 25 percent expect a higher number of employees.

For EY partner Griess there are no more general job cuts in the German banking industry.

According to EY, this will create new positions in risk management and IT.

55 percent of the banks surveyed want to create new jobs here.

On the other hand, 41 percent are making cuts in direct customer support, which is mainly a result of the branch closures.

Salaries are likely to rise again.

Around one in three bank managers expect higher total compensation, while 7 percent assume the opposite.

According to Melnyk, the shortage of skilled workers also affects the banks.

They would have to dig deeper and deeper into their pockets for qualified personnel.