There is a chance of Golden Twenties, but...

Heinz-Gerd Stickling, Partner at zeb: „ Both micro- and macroeconomically, the course is now being set.“


Germany is starting into its 20th legislative period and the major issues are becoming clear: climate protection and financial policy. Both of these areas are closely linked to the financial sector, for example in topics such as “financing the energy transition”, “green finance”, “public financing/investment”, etc. At the same time, banks are no longer in the political spotlight. In our interview, zeb Partner Heinz-Gerd Stickling argues that they should be. The Head of zeb.Research also shares his view in the following video of an event organized by the Association of German Banks (BdB) and the Banking Academy: “After the 2021 federal election – what do German banks have to expect?” 
Video (only available in German

Mr. Stickling, What is the current standing of banks in the political world?
: After the financial market crisis more than ten years ago, bankers were personae non gratae. That’s changed. During the COVID-19 crisis in particular, banks did a very good job, which was recognized by policy-makers. But we are a long way from policy-makers backing Germany’s financial center or the financial services sector – banks, insurers, reinsurers – as is the case in France, for instance. To give you an example: the biggest beneficiary of Brexit-related relocations from London’s financial center was not Frankfurt – it was Paris; partly thanks to strong political efforts to support the location.

Large parts of the German political landscape regard banks and banking services as a public good or merely as a means to an end. Secure credit supply available on every level is simply expected – at very reasonable prices and combined with high standards of consumer protection, too. Given the high regulatory pressure – the current buzzword being Basel IV – and historically low interest rates, this goes hand in hand with shrinking earnings and ultimately with progressive downsizing measures. 

And right now, politicians are looking to banks to fulfill an additional task. All parties have recognized the market as a major help in ecological transformation; it can effect rapid change and act as a major lever. Banks are to take on the role of an evidence center for ecological restructuring. They are expected to help measure and report their customers’ carbon footprint. In addition, banks are to orient their lending, investment and equity decisions strongly towards green criteria.

... Green transformation – in your view more of an opportunity or a risk for banks?
Green transformation is a double opportunity: it shifts the attention back to the concerns of banks. After all, if we want to turn the tide on climate change, we will need strong banks – and not just in Germany, but in Europe as a whole. We need a strong European capital market to meet the challenges of economic restructuring. But this requires more standardized rules: in taxation, in the legal framework, for example in insolvency law, in regulations and so on.  

Ecological transformation also opens up an opportunity for banks in economic terms: as lenders, facilitators of transactions and advisors on implementing sustainability requirements. We examined this in the latest edition of our European Banking Study. About five percent of the portfolio of the top 50 banks in Europe is in brown business and thus difficult in terms of compliance with sustainability criteria. This segment has high margins, but it is risky and faced with declining volumes. Another five percent is considered green, renewable energies for example. In other words: 90 percent of the portfolio is transition business. This will be the biggest challenge: walking the net zero path with clients, offering them both capital and advice. This is also where new business can be found: in financing alone, we are expecting five percent growth in earnings.

After years of poor results, is the industry about to enter the Golden Twenties of the 21st century?
A brief look back: over the past decade, capital resources have improved and the system has become more stable. Over the same period, however, banks have barely earned their cost of equity. The result: politicians are happy, shareholders are not. The market valuation of banks has fallen significantly. The DAX reflects this: only one credit institution is still represented in it.

The banking business could become fun again if interest rates in Germany were to follow the trend in the US, which we believe to be possible. But even in this best-case scenario, earnings will remain under pressure in the coming years. After all, banks and savings banks in Germany have long-term fixed rate contracts on their books. Thus, today’s changes in interest rates only partially improve earnings in the short term.

But there are also opportunities and reasons for hope: I have already described the opportunities arising from green transformation. In addition, we see opportunities resulting from digitalization. Until now, this has often been regarded as a threat – the buzzwords being Big Tech and FinTech companies. Meanwhile, we have developed our own perspective: we think that digitalization can make banking more efficient and competitive and also more attractive for customers.

The industry and the economy in Germany have coped reasonably well with COVID-19. Market participants keen to “make up for lost time” promise prosperous years 2021 and 2022. Future developments after 2023 depend very much on how the issues of demography, employment rates, stabilization of the social systems are tackled and on the framework that is set now – in geopolitical as well as European policy terms. These are issues that are crucial for our future but did not play a major role in the election campaign. This means that both micro- and macroeconomically, the course is now being set for either golden or strenuous twenties.