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We discussed many times that the German banking sector is less profitable than other banking markets in Europe. During your tenure, would you say that German banks have improved in recent years or are they still laggards?
There has been an improvement in general, but low profitability has been a major headache for all European banks. The average European bank has not been earning its cost of equity for a long while. It is true that German banks have been on the lower end of the spectrum, also within the euro area banking sector, and this has remained the case to some extent. They have improved recently. The return on equity is now around 6% but still below the euro area average, which is around 10%. So the profitability is still lagging behind a bit. Improvements have been materialising as a result of course of the change in the interest rate environment.
What has driven the different impact in different countries of the shift in the interest rate environment has mainly been the relevance of the fixed-rate contracts and the pass-through to depositors. In this area, Germany is more or less average in the euro area, so it has maintained that position. Cost efficiency is also an important issue for the German banking sector. It has improved but the cost-to-income ratio is still above the euro area average. So there is still a bit more to be done...
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