Renewed decline in number of credit institutions – Brexit preparations slow decline

The consolidation process in the German banking sector continued in 2018. However, the number of institutions did not fall as steeply as in the year before on account of new additions in the context of banks operating in Europe and on the international stage preparing for Brexit. Over the course of the year, the overall number of credit institutions fell by 40 to 1,783. This corresponds to a 2.2% decline compared with a drop of 3.4% in 2017.

“The banking sector is undergoing structural change. This is being driven primarily by the low interest rate environment, the challenging competitive situation and digitalisation, which is requiring banks to invest heavily and adapt. With that in mind, we can expect more mergers to come in future,” said Bundesbank Executive Board member Joachim Wuermeling of the development. “It is a good sign that the banks are striving on their own initiative to establish efficient structures in the face of declining income,” he continued.

Altogether, 31 additions and 71 departures were recorded across all credit institutions. Of these departures, 40 (2017: 57) were attributable to mergers in the cooperative sector. The number of institutions in the cooperative sector thus fell to 864, representing a drop of 4.4%. In the savings bank sector, there was a merger of 5 (2017: 13) savings banks, while 2 Landesbanken were reassigned to other bank categories. As a result, 386 savings banks and 6 Landesbanken remained. The number of commercial banks rose by 8 to 398 institutions in 2018. Of these, 6 additions and 10 departures were attributable to the “Regional and securities trading banks and other commercial banks” category, which comprised 182 institutions at the end of 2018. By contrast, with 22 additions and 10 departures, the number of institutions in the “Branches of foreign banks and securities trading banks” category increased significantly to 212 (see Table 1). The prospect of Brexit played a major role in this development.

Number of domestic branches down sharply

The number of domestic branches[1] plummeted in 2018 by 2,239, or 7.4%, to 27,887, having fallen by 1,900 in the year before. The figure includes traditional branches and facilities with self-service terminals and additional access to consultants. Self-service terminals without such access are not included in the figure. This development reflects the impact of digitalisation on distribution channels due to greater use of online services.

“Individually, branch closures are regrettable for consumers,” Mr Wuermeling stressed. “That said, we still have a wide network of branches in Germany. This means that customers can increasingly take advantage of digital services while maintaining their personal points of contact, which are as highly valued as ever in the banking business.” 

A net decline in the number of branches was observed in nearly all sectors of the banking industry except among branches of foreign banks and mortgage banks. A significant drop was once again recorded in the savings bank sector (including Landesbanken) – a fall of 442 to 9,732 branches. As a result, the total number of branches in this sector dropped below the 10,000 mark for the first time. However, with a share of 34.9%, this sector still has the largest number of domestic branches.

The cooperative sector saw even more branch closures than the savings bank sector. Here, the number of branches fell by 500 to 8,955 (share of domestic branches: 32.1%).

Commercial banks made the biggest cuts to their branch numbers, reducing them by 1,272 (-14.1%) to 7,770, leaving them with an overall branch share of just 27.9%. With 6,298 (-522) branches, big banks still have the largest share of all commercial bank branches. Divergent developments were observed here. On the one hand, DB Privat- und Firmenkundenbank AG, which was previously classified as a regional bank, was reclassified as a big bank following its merger with Deutsche Postbank AG. This raised the number of branches for big banks. On the other hand, the two merged institutions closed 1,085 domestic branches. As a result, the regional banks’ branch network contracted relatively sharply, losing 750 branches to leave 1,303.

Only slight declines were recorded in the building and loan association sector: the number of public building and loan association branches fell by 44 to 485, while an increase of 16 to 872 was observed in the case of private building and loan association branches. The number of branches in the “Other” category (excluding building and loan associations) stood at a mere 73 (see Table 2).

Number of foreign subsidiaries down much further, but slight increase in number of foreign branches

At the end of 2018, the number of subsidiaries[2] domiciled abroad had dwindled from 124 to 97. The number of subsidiaries of German big banks throughout the world alone fell by 18 to 68, while regional banks reduced their foreign presence, taking the number of their subsidiaries down by 4 to 15.

By contrast, the number of branches of German credit institutions abroad rose slightly last year by 2 to 226. Over two-thirds of all foreign branches as well as slightly less than half of foreign subsidiaries are located in Europe, predominantly in EU Member States (see Table 3). This includes 27 foreign branches (2017: 26) and 6 foreign subsidiaries (2017: 9) located in the United Kingdom.

Footnotes:

1.  Branches pursuant to Section 24(1a) number 4 of the German Banking Act. Branches that only provide automated banking or financial services are not included here.
2. Equity interest of more than 50% in a foreign credit institution.