In a survey by the auditing and consulting firm EY, more than one in two banks said they planned to adjust lending conditions upward this year. Thus, 52 percent of the 120 financial institutions surveyed, including eleven fintechs, expect corporate loans to become more expensive. In the case of real estate loans, the figure is as high as 57 percent, which is also due to the measures taken by the German Federal Ministry of Finance, the financial supervisory authority Bafin and the Bundesbank to curb speculative exaggerations on the market for residential real estate by providing additional equity buffers for banks. These are aimed at making loans more expensive.

According to EY, hardly any bank managers expect interest costs to fall for customers. In addition to the search for yield, banks must also respond to the changing interest rate and inflation environment. In the bond market, inflation concerns and expectations of tighter monetary policy have fueled an interest rate dynamic whose force is now increasingly evident. While the yield on the ten-year German government bond was still minus 0.4 percent in mid-December, it scraped the 0.8 percent mark on Monday. That's an interest rate differential of 1.2 percentage points.

The latest "EY Banking Barometer" further reveals that 30 percent of bank managers expect more restrictive lending to companies. Only 6 percent expect the opposite development. The assessment of business prospects in business with corporate customers is encouraging: 86 percent rate them as good or very good.

Despite the confidence in this business area, private customers are threatened with further disaster in the form of new fee increases in addition to higher interest rates for real estate loans. Already 15 percent would have increased the fees for current accounts this year. Another 34 percent planned to take this step. According to the EY survey, bank transfers have become more expensive at 12 percent of banks, and 28 percent are currently preparing to do so.

"In recent years, institutions in Germany have had to learn to cope with a low-interest rate environment and manage with significantly lower interest income than in previous times," Thomas Griess, Managing Partner Financial Services Germany at EY, was quoted as saying in the press release. At the same time, regulation is increasing. The bottom line is that it is becoming increasingly difficult to operate profitably. "So banks are continuing to think hard about new sources of revenue," he is convinced.

They are also keeping an eye on the cost side. In the wake of digitization and the shift toward online banking, the branch network has been thinning out for years. But there is no end in sight: 80 percent of the bank managers surveyed expect the number of bank branches in Germany to fall by at least 20 percent by 2025. "Corona has accelerated the death of branches once again," says Robert Melnyk, head of the Banking and Capital Markets practice at EY. As a result of the pandemic, digitization has also taken a big leap in retail banking, he says, and the transformation has been significantly advanced. Accordingly, significant parts of the branch network at many banks are now under scrutiny.

According to Melnyk, branches are to be closed at 25 percent of banks due to corona. "One lesson from the pandemic is that digital is also possible. Customers are increasingly willing to do their banking online," Melnyk adds. To be sure, 29 percent of banks are looking at staff reductions. They expect a decrease in the number of employees in the next six months. At the same time, 25 percent expect to increase their headcount. For EY partner Griess, there are no longer any general job cuts in the German banking industry. According to EY, new positions will be created in risk management and IT. Here, 55 percent of the banks surveyed want to create new jobs. On the other hand, 41 percent are making cuts in direct customer service, which is primarily a consequence of branch closures.

Salaries are likely to rise again. Around one in three bank managers expect higher total compensation, while 7 percent expect the opposite. According to Melnyk, the shortage of skilled workers is also affecting banks. They would have to dig deeper and deeper into their pockets for qualified personnel.

Image by Steve Buissinne