Germany: the sparkasse of innovation
As established banks migrate to a digital era, new entrants in the German market are threatening to seize the moment.
“We see a change in society; in the way that smart phone adoption feeds back into the way we run our business,” says Andreas Vollmer, chief IT architect of Commerzbank. “It is not just about the technology, it is also about how we digitise our processes.”
The digitisation of banking is a global phenomenon, yet national markets generate their own tectonic pressures which dictate the pace of change. With new financial technology (fintech) startups keen to take business from traditional banks, a new evolutionary dynamic is in play.
In the pallid-looking European banking sector, Germany’s banking system got some colour back in its cheeks on 8 October 2015 when rating agency Moody’s upgraded it from ‘Negative’ to ‘Stable’. The change reflected a more solid footing for the banks, following the introduction of a resolution regime last year and the industry’s positive characteristics including high quality loans, capital buffers – which Moody’s referred to as “adequate” – and a reduced reliance on capital market funding which is subject to shifts based on market confidence.
On paper, German banks are a safer pair of hands than their counterparts in many of the southern states of Europe. Nevertheless, traditional banks in Germany are far from complacent in their domestic market. Consolidation and closure has seen the number of banks falling from 2,987 in 2000 to 2,038 in 2007, and down to 1,804 in Q1 2015 according to Bundesbank data. Analyst house Scope Ratings, reports that average net assets per bank have grown by just €900 million since the pre-crisis period, rising to €4.6 billion in Q1 2015 up from €3.7 billion in 2007.
The country’s larger banks are pulling back from broad growth strategies in order to minimise the impact of new capital rules. This echoes a global trend, with a refocusing of business on specific lines and potential ring-fencing of higher risk activities. As costs increase, the real impact of legacy systems is in evidence…
This is an excerpt. The full article is available in the February 2016 edition of Banking Technology. Click here to read the magazine online.
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