13 January 2006

EZA 720: Briefing note: Germany

German Banking Sector –on the road to recovery
After 18 months of decline German banks’ lending to the private sector sprung back to life, during the last nine months y/y growth swung from -0.3% to +2%. Apart from institutional issues mortgage lending and a nascent recovery in corporate bank lending have been key drivers. The big private banks show contrasting growth strategies in terms of domestic focus and disintermediation. Deutsche Bank is betting on more market financing, other banks on (traditional) bank financing. Downsizing in the public banking sector continues, although the recovery in lending implies abating consolidation pressure ahead. Most of the current recovery seems to be cyclical in nature. But progress has been made also in terms of restructuring, bringing the German banking sector more in line with that in other euro area economies.

SummaryAsset conclusions: most of the profit swing seems to be priced into the market - with Commerzbank and HVB shares being the top performers. Expect some price consolidation ahead.

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© Graham Bishop