German Banks Warned About Risky Bets Amid Low Rates
Lenders Should Raise Fees, Trim Branch Networks to Lift Profits, Regulator Says
FRANKFURT —The current low-interest-rate environment is the greatest challenge for German banks and could push some into making risky investments, a senior German banking regulator said Tuesday.
Cutting costs and merging “can help” but aren’t a complete solution, Elke Koenig, head of Germany’s banking watchdog BaFin, said. Ms. Koenig added that banks need to focus on rationalizing their branch networks and raise fees to levels that better reflect costs. She acknowledged that charging higher fees might be hard because Germany’s banking market is extremely competitive.
German banks are struggling to boost profits amid rising regulatory costs, weak economic conditions across much of Europe and record-low interest rates, which reduce banks’ income.
Interest income accounts for 70% of German banks’ profits, which is high by European standards and has been hit by falling interest rates. Reliance on interest income is the main reason for German banks’ low profitability, Ms. Koenig said.