Compared to their European peers the estimated returns of German banks – at 11.8% in 2003 – lag far behind others such as the Spanish (24.6%) and the Austrians (33.9%). Cost income ratios are also very weak at 75% compared to the Spanish (53.1%) and the UK (48.8%). Analysts suggest that the high fragmentation in the German banking market – the five largest credit institutions account for only 20% of total assets – is one of the factors behind the relative inefficiency.
Consolidation has been urged for years but owners seem unwilling to change the banking structure that may have done well in the post-World War II period but seems unsuited to the 21st century. In April the state-owned Frankfurter Sparkasse rejected a possible sale to a commercial bank, the second savings bank in the last two months to reject privatisation efforts. Hostility from local politicians is seen as the key reason why sales have been rejected. And so Germany continues with 519 different savings bank institutions which continue to perform below European averages and continue to paralyse the emergence of an efficient German banking sector.
