After a good start to the year, the business environment for German banks will deteriorate significantly over the course of the year from the point of view of the rating agency Scope.
The German banks did better in 2021 than they had in ten years, and the signals from the first quarter have also looked promising so far, said the Scope director responsible for financial institutions, Christian van Beek, in a statement on Monday.
But now storm clouds are gathering over the global economy, so the positive momentum so far will weaken significantly in 2022.
Inflation will add pressure on the cost side, while provisioning is likely to increase as the Ukraine war weighs on growth prospects.
“German banks have relatively low profitability before provisions compared to their European peers, which limits their ability to absorb increases in risk costs in more extreme scenarios,” explained van Beek.
This is due to low net interest margins and cost/income ratios that are still far removed from international standards.
This gap could narrow in the long term - albeit very slowly.
Overall, Scope is of the opinion that even a sustained deterioration in the economic environment will remain manageable for the banks in Germany.