Moody's downgrades German banks

The U.S. credit rating agency Moody's has reviewed the German banking sector depreciated. The outlook has changed from 'stable' to 'negative', as the profitability of the banking sector is under pressure. According to the rating agency, banks in Germany have not been sufficiently successful in maintaining their profit margins. They also do not yet charge the negative interest rate sufficiently to savers, which means that banks earn little from savings.

The problems in the German banking sector have been known for some time. This can also be seen in the development of the value of German bank shares. Over the past decade, the value of Deutsche Bank's stock has fallen by more than 80%, while Commerzbank has seen almost 90% of its stock market value evaporate over the same period. Germany's two largest banks need to reorganize to reduce their operating costs and improve profitability.

Banks under pressure

Banks in Germany have a relatively large amount of savings and are therefore hit hard by the ECB's interest rate policy. The negative interest rate on excess reserves means that banks have to pay many millions to the central bank every year. The banks have to pass on this penalty interest to savers, but they have waited a long time to do so. According to Moody's, if they want to improve their profit margins, banks should start charging more negative interest rates to savers.

Earlier this week, the ECB also came to the conclusion that conclusion that declining profitability of the banking sector could pose a major threat to the growth of the economy. As a result, banks have few buffers to build up, which makes them vulnerable in the event of a crisis.

This contribution comes from Geotrendlines