Banks are becoming scarce in rural areas. This is due to a merger trend that has been going on for decades and has accelerated in recent years due to increasing cost pressure and regulatory uncertainty.
The industry expects further mergers in the coming years, albeit at a somewhat slower pace. In bavaria alone – a traditional stronghold of small cooperative banks – there were 16 mergers in 2017, and this year there will probably be eight mergers, according to an estimate by the cooperative association (GVB) in munich, as GVB president jurgen gros puts it.
The bare figures: in 1970, there were still 7096 volks- und raiffeisenbanken in western germany; in 2000, there were 1794 in reunified germany, and last year there were still 915. Yet the cooperatives are by no means lacking in popularity: the number of members has risen from just over six million to 18 million over the past five decades, and the average balance sheet total has increased more than twentyfold.
Some experts view this trend with concern: "the regional banks know their market and their customers very well. If they lose their regional roots, it’s dangerous," says hans-peter burghof, chair of banking and financial services at the university of hohenheim.
The industry sees things differently. "The volks- und raiffeisenbanken are still very close to their customers," says GVB head gros. "Compared with other european countries, we have a very high service density in germany, with one bank employee for every 131 inhabitants. The european average is 174 inhabitants."
Traditionally, cooperative banks have been very stable, and they were hardly affected by the 2008 financial crisis. Burghof criticizes the approach of european banking supervision in this context. This should actually be geared to the bank’s size and complexity. Means: coarse banks with high systemic risk should actually also have to bear relatively higher supervisory costs. "Unfortunately, that’s exactly what it’s not doing at all," says banking expert burghof.
"This causes high fixed costs that affect everyone, whether gross or small. Regulators are pressuring small banks to merge." This is counterproductive – "because in doing so, the supervisory authorities are creating precisely what they were supposed to prevent: a systemic risk."
Regional banks became coarser and local ties were lost. "It’s not the market that drives mergers, it’s supervision," says burghof. "We have a well-functioning system. Our banks are not too small, rough and high profits are not a sign of efficiency."
The fact that regulation places a greater burden on small banks than on large financial institutions is also seen in the industry: "banks have to recruit more specialists in order to meet the increased regulatory requirements for compliance and market success," says GVB president gros in munich. "Specialists are in short supply, and it is increasingly becoming a challenge to obtain them."
This also leaves less time for market development. But, emphasizes gros: "the volks- und raiffeisenbanken are the most profitable banking group in germany, as the bundesbank noted in its most recent monthly report."
The number of savings banks is also declining. The only trend in the opposite direction is among the private banks, which include the big players such as deutsche bank. Their number has remained stable over the past ten years, with 281 at the end of 2017. This is mainly due to the fact that foreign institutions have opened branches in germany, including several large chinese banks. "In view of the imminent brexit, a further increase in the number of foreign banks is to be expected," says a spokeswoman for the banking association in berlin. "At present, the number of branches of foreign banks in germany is growing moderately."