EuroCrisis: German Banks Hit Hard

By Roger Baettig | October 21 2012 5:07 PM

Sponsorship Link

International credit rating agency Moody’s said the outlook for Germany’s banking system remains negative owing to intense competition, low interest rates and a weaker environment.

“The outlook for Germany’s banking system remains negative,” Moody’s said in a new Banking System Outlook. “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.’’

Banks were re-focusing on their domestic operations to reduce risk exposures but that would “exacerbate structural pressure on earnings in the context of additional costs, weakening economies of scale and low loan-growth prospects,” the report said.

Operating conditions for the sector would be “challenging” in the next 12-18 months, even if indicators for the German economy remained sound so far.

Moody’s said in was penciling in growth of 1-2 percent for Europe’s top economy next year.

“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,” it said.

German banks could be “vulnerable to a worsening of the sovereign debt crisis in Europe and to macroeconomic stress,’’ Moody’s said.

“High balance-sheet leverage and low pre-provision profits will make it difficult for many German banks to cope with major [unforeseen] losses,” it added.

Shayne HeffernanShayne Heffernan oversees the management of funds for institutions and high net worth individuals.Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service