By European standards, Germany has emerged as a shining example of how to deal with a global pandemic. The authorities moved quickly to enact an effective contact-tracing programme, while the country’s impressive healthcare system was better positioned than most to deal with the unprecedented demands of the Covid-19 crisis.
As a result, Berlin imposed fewer lockdown measures over the course of 2020 than many of its European counterparts, while also injecting much-needed fiscal stimulus into the economy. The outcome was that German gross domestic product contracted by just 5% over 2020.
Despite this more positive macroeconomic picture, German banks, in common with their euro area peers, have not had an easy time of it. Even before the pandemic, lenders in the country were grappling with low profitability due partly to high cost-to-income ratios, as well as the fragmentation of the wider sector. The Banker’s Top 1000 World Banks ranking and performance analysis makes clear, however, that efforts by German banks to cut costs and strengthen their balance sheets are starting to gain traction.
The best-performing bank out of Germany’s largest 10 lenders, with an overall performance score of 6.30, is Hamburg Commercial Bank. Helping with this result is the lender’s number one standing in the profitability, operational efficiency, soundness and leverage stakes. Notably, however, the bank did not perform as well in terms of its growth, asset quality and liquidity metrics relative to leading peers. DekaBank Group, the central asset manager of the Savings Bank Group, secures second place overall, with a score of 5.58.
Deutsche Bank, the highest ranked German lender in the Top 1000 main ranking, with a global position of 34th, secures third place in the best-performing table. Its score of 5.53 is underpinned by a strong showing in the return on risk and liquidity categories, where it came first, as well as second for profitability. Indeed, the bank shrugged off recent difficulties by posting a $1.3bn profit in 2020, thanks in part to the robust performance of its investment banking division.
Meanwhile, Germany’s third biggest bank by Tier 1 capital, DZ Bank, secures fourth place in the overall best-performance ranking with a score of 5.07. Its outstanding asset quality ranking, where it placed first among the featured institutions, contributed to this achievement.
Finally, another German banking giant, Commerzbank, comes last in the best-performance table, with a score of 4.32. Its best metrics are the liquidity, where it placed third, as well as growth and soundness indicators, achieving fourth place in both categories. Commerzbank is currently engaged in a far-reaching restructuring of its business, including exiting some markets and business lines, and aggressively lowering its cost base.
Though some German banks have performed very well under difficult conditions, it will take time for the sector as a whole to complete the journey to higher profitability. For one thing, the system is highly fragmented, with a large number of strong regional lenders and savings banks. As a result, some consolidation is likely to emerge over the coming years as German banks streamline and enhance their offerings.
