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Opinion

Is German banking a zero-sum game?

Clients have had a much easier time than their banks in Germany, but fintech innovation is creating ways for the likes of Commerzbank and Deutsche Bank to thrive, even in the country’s SME heartlands.

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As negative rates go deeper and last longer, the impact of the poor domestic positions of Commerzbank and Deutsche Bank is coming to a head.

More than any other big European banks, Germany’s biggest private lenders now stand almost no chance of earning their cost of equity. Efficiency measures alone won’t mend this, even if their workers brook deeper cuts.

Was this always the trade-off: between a strong German economy and sovereign, and the underperformance of the international banking champions?

Big banks work when they have large market shares at home. In Germany, even Deutsche and Commerz cannot compete against the local power of hundreds of cooperative and publicly owned savings banks, which have a far higher combined domestic market share.

The German cooperative and savings banks have been better at lending to the smaller SMEs that matter – largely because they are decentralized.

In any country, the corporate and mass market will be best served, because banks can more easily achieve economies of scale there without endangering their loan books. However, this is not where banks are most useful as creators of jobs and exporters.




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