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Germany's bank regulators, the Bundesbank and BaFin, surveyed
about 1,500 small and medium-sized banks, accounting for 88
percent of institutions and 41 percent of total assets.
The findings showed that banks expect pretax profit to fall by
an overall 9 percent over the next five years, the watchdogs
said.
That corresponds to a 16 percent decline in the banks' total
return on capital. While steep, that is less than the 25 percent
decline in return on capital anticipated in the previous survey
two years ago.
"While these institutions are planning ahead somewhat more
positively than two years ago, it should be noted that this
finding solely indicates that their profitability - which
started low - is deteriorating at a slower pace than before,"
said Andreas Dombret, a Bundesbank board member who oversees
banking supervision.
"The phase of stagnation caused by low interest rates is far
from over," he said.
The regulators welcomed the fact that banks were finding
alternative sources of income to counter low rates. Those
sources include imposing fees and commissions.
Profitability would worsen further if rates remained ultra low
for the foreseeable future. Banks' return on capital would
shrink by 40 percent if interest rates were to remain stable
until 2021, they said.
(Reporting by Tom Sims; Editing by Maria Sheahan)
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