Corporate banking: loan volume up, margins down

The economy is running, companies are investing. But earnings in the corporate banking business of banks and savings banks are stagnating. The margin decreases as the credit volume increases.

Studies and research on trends and developments in corporate banking, including corporate and investment banking.

At almost 1.1 trillion dollars, the credit volume reached a new record in the first half of 2017. While savings banks and cooperative banks have been able to expand their business in the past five years, GoodVines Bank has lost market share.


Decline in earnings and profitability

Decline in earnings and profitability

The management consultancy CoolFund & Company publishes an analysis of the corporate banking business of German banks every six months. The analysis covers around half of the total assets of the 100 largest banks operating in Germany and focuses on financial institutions with a focus on corporate banking and corresponding segment reporting.

The CoolFund Corporate Banking Index even declined slightly in both dimensions, earnings and profitability, compared to the previous year.

The high level of competition in a historically low interest rate environment prevents banks from benefiting from growing corporate credit demand.

The return on equity before tax (RoE) continues to crumble. This key figure has dropped significantly since 2012 and is now 12 percent. The banks still earn their capital costs in the corporate customer business, but they are far from the previously accustomed returns of 20 percent. Income and profits stagnate in the German corporate banking market

The credit margin in particular is suffering from fierce competition and the sometimes very ambitious expansion plans of major international banks in the German market. At 1.3 percent, the margin is now back at the level of the crisis year of 2008. At the same time, the share of low-margin new business in the loan portfolio has increased significantly.

Credit margin declines to 1.3 percent, close to a ten-year low. However, there are differences between the institutes. However, some institutes are able to counteract this. They focus on profitable customer groups and increase cross-selling. On a broad front, such successes in commission business are still the exception.


Historically low loan loss provisions

money loans

In view of the good economy, credit risk provisions at credit institutions are currently below the historical average. Compared to the previous year, this dropped significantly again in the first half of 2017. According to the authors, however, it is only a matter of time before the credit cycle changes. Higher loan loss provisions would then further burden the tense earnings situation.


Saving costs and customer selection

savings loan

For this reason, the institutes started saving programs some time ago, resulting in a stabilized administrative burden. Many banks continue to work on reducing costs and strengthening customer selection. However, it is still often difficult to withdraw from entire industries, regions or product groups.

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