German bank earnings stand to fall by up to 25 percent in the next five years due to high regulatory costs, a weak economy and threats from high-tech competitors, pressuring the sector to reform or consolidate, an industry study showed.
German banks have been some of the slowest to adapt to the tough competitive conditions that emerged after the financial crisis, and have earned some 9.5 billion euros (£6.8 billion)less than their cost of capital in the period 2009 to 2013, BCG said in a study.
“The business models of the established banks don’t hold up any longer,” said Ruediger Filbry, head of BCG’s banking advisory division. “German banks can’t simply continue as they have in the past.”
Overcoming structural weakness means more than cutting costs, something German banks have done with little success in the past, he said. Banks that do not adapt will face pressure to consolidate, Filbry said.
Despite spending 9 billion euros on one-off cost-cutting programs over the past five years, the combined costs in the sector haven’t changed, even though operating earnings have fallen by about 10 percent, according to the study.
“More cost cuts won’t help,” Filbry said. Rather, banks need to embrace new strategies, pare bricks-and-mortar branches and embrace new technologies.
While clients have migrated to online and mobile services, many German banks have been slow to adapt to online technologies and close street-front offices, said BCG partner Til Klein at a media briefing.
“The cultural change issue is huge for German banks,” he said, adding that German banks are expected to cut up to 50 percent of their branches in the coming years.