German Banks Must Review Business Models After Virus, Watchdog Says

(Bloomberg) --

Germany’s beleaguered banks should pursue more ambitious overhaul plans after the fallout from the coronavirus subsides, according to the country’s top financial watchdog.

“It’s clear that the crisis reinforces problems that banks were already facing,” BaFin President Felix Hufeld said, without naming any lenders. “When it’s over, they will have to study their business models even more urgently.”

German banks are among the least profitable in Europe because their cost cuts have been unable to make up for years of negative interest rates eating into lending income, a major source of revenue. While Deutsche Bank AG, the country’s largest bank, embarked on its deepest overhaul in decades last year, smaller rivals such as Commerzbank AG have shied from more radical action.

Read this for why Commerzbank may be in store for deeper changes

Hufeld, who spoke on a call with reporters on Tuesday in Frankfurt, also said:

• Banking system can withstand the crisis, “albeit with a few scratches”
• Corporate defaults will play out over “weeks, months and maybe years”
• Supervisory demands will return to normality step-by-step after the crisis
• “We’re not going to penalize banks for doing their bit to stabilize the economy”

©2020 Bloomberg L.P.