Ratings agency Moody's sees German banks under mounting stress and has upheld its negative outlook for their business. Profits are set to tumble further as the country's bloated finance sector hits a shrinking market.
Sluggish growth in the global finance industry and fierce domestic competition would increase stresses for German banks over the next 12 to 18 months, Moody's said Friday, as it maintained its negative outlook after downgrading the sector in June.
"Intense competition and low interest rates are causing margin pressure that will likely further erode the banks' already weak revenues and profits," the international ratings agency said in a statement.
In addition, Moody's said it expected extra costs from the banks' drive to re-focus operations on the domestic German market in the wake of the 2008 financial crisis and the debt problems in the eurozone.
Their efforts to reduce exposures to international risks would exacerbate structural pressure on earnings in the context of a weakening economy and low prospects for growth in loans.
The German banking system, which consists of private banks, partly state-owned savings banks and so-called collective banks, boasts more financial institutions than most other industrialized countries.
As a result, Moody's described operating conditions in the German market as "challenging," despite German economic growth expected to come in at between 1 and 2 percent.
Matters would worsen, the agency found, if German banks would suffer "unforeseen losses" as a result of the sovereign debt crisis in Europe.
uhe/cg (Reuters, AFP, dapd)