Cost pressure rising on German banks: Moody's

[FRANKFURT] German banks remain under intense pressure to cut costs but may avoid resorting to extensive layoffs by increasing efficiency through reorganisation and automation, credit ratings agency Moody's said on Tuesday.

German banks remain some of Europe's least efficient due to high fixed costs and weak IT infrastructure, making them less able to respond to problems than peers in countries such as France, Belgium and the Netherlands, said Carola Schuler, managing director for banking in Europe, Middle East and Africa.

"Within Europe, German banks show an astoundingly low profit potential," Ms Schuler said at media briefing. "Germany needs to catch up."

Due in part to German banks' reliance on interest income, now depressed due to low official rates, profits have increased less than costs, said Alexander Hendricks, associate managing director at Moody's. "Banks can optimise their costs by improving processes and don't need to resort to massive layoffs," he said.

Other European countries like France and Belgium are ahead of Germany in IT investments and staff restructuring, making them more efficient and agile. Germans are also more cost-conscious than many other Europeans, meaning banks have a harder time imposing fees for services, Ms Schuler said.

When comparing profitability against risk exposure, German banks are the weakest in Europe, largely because high costs have devoured earnings, according to Moody's data.

Separately, Moody's said downgrades for German bank debt were more likely than not in the coming year due to the waning likelihood that the government would bail out bondholders.

Financial conditions in the sector, however, were improving largely due to the country's economic performance, the study said.

REUTERS