Tue. Oct 4th, 2022

AUGUST 16, 2022

Country Report No. 2022/273 : Germany: Financial Sector Assessment Program-Technical Note-The Determinants of Bank Profitability

German bank profitability is low by international standards. Although German banks rank more favorably in risk-adjusted terms, as low profitability is partially compensated by lower volatility of returns, their profitability ratios remain low. On other measures (such as returns on assets, equity, and risk-weighted assets), German banks, on aggregate, rank among the least profitable in Europe. Several factors affect bank profitability, including a complex tiered industry structure with barriers to entry and an explicit mandate of a large part of the banking system – cooperative and savings banks – to maximize welfare of stakeholders rather than profits.

 


Country Report No. 2022/271 : Germany: Financial Sector Assessment Program-Technical Note-Crisis Management and Financial Safety Nets

Much progress on resolution planning and preparedness has been achieved since the last FSAP in 2016. Germany’s resolution planning is well advanced, with resolution powers broadly in line with best practice and well-developed internal resolution processes. However, the large weight of Less Significant Institutions (LSIs) in Germany’s financial sector calls for further progress on planning for crisis management for smaller banks and the institutional protection schemes (IPSs) of which they are members.

 


Country Report No. 2022/272 : Germany: Financial Sector Assessment Program-Technical Note-Stress Testing, Interconnectedness, and Risk Analysis

The financial sector weathered COVID relatively well on the back of high pre-crisis capital and liquidity buffers, strong public and private sector balance sheets, and unprecedented public and ECB support. Immediate risks to Germany’s financial stability of Russia’s invasion of Ukraine appear to be manageable due to the banks’ limited direct exposures to Russia. However, risks associated with the economic fallout could impact some individual financial institutions, non-performing loans, and house prices. Real GDP growth was projected to regain momentum from mid-2022 onwards, but the war could hinder the recovery through supply constraints, higher-than-expected above-target inflation (with higher energy prices and supply constraints), a tightening of financial conditions, and shifts in investors’ confidence.