Moody’s to Lower Its Stance For Banks In Germany

On Thursday, Moody’s reduced its outlook for some banks in Germany, becoming “negative” from “stable” movement. In addition, profitability and overall solvency deteriorated in a low-interest rate environment.

In a report announced today, the rating giant showed the weak profitability of German banks.

Moreover, it will weaken further over the next 12 to 18 months as net interest income drops.

Moody’s vice-president and senior credit officer, Bernhard Held, said, “Traditional commercial banks and in particular deposit-funded institutions will struggle to out-earn their costs in the continuing low-interest rate environment, even though loan-loss provisions are unsustainably low.”

Meanwhile, the bleak projection arrives just a day after the European Central Bank (ECB) cautioned that the declining bank profitability caused one of the biggest fears to economic growth in the eurozone.

On the other side, Moody’s emphasized that less significant deposit-funded banks in Germany will take the hardest shot.

Enhancing of Income Ratio

The issue has to do with growing loans and securities repricing at lower rates. Meanwhile, interest rates compensating on retail deposits are “in practice at or close to 0%.”

Elsewhere, Banks in Europe’s leading economy have strived to improve their high cost to income ratio.

In 2018, it attained 80%, and the report forecasted that this is not likely to make progress in the short-term versus persistent revenue headwinds.

Since 2007, Deutsche Bank has dropped 600 billion euros of its assets. Now, it is down more than 60 percent in terms of market capitalization.

Commerzbank, on the other hand, has increased around 100 billion pounds. The upsurge was in its overall assets but lost half of its market cap.

In terms of share price, Deutsche Bank stock has been plunging more than 80 percent over a ten-year period.

Meanwhile, Commerzbank shares have vanished almost all its value over that period, with stocks set down nearly 90 percent.