Home » German banks increase billion-dollar profits by 25% – why?

German banks increase billion-dollar profits by 25% – why?

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German banks increase billion-dollar profits by 25% – why?

“Mainhattan”: The skyline of Frankfurt with the well-known banks. picture alliance/dpa | Silas Stein

Major German banks will increase their pre-tax profits by 25 percent to 23.9 billion euros in 2023, according to Barkow Consulting.

The increase is due to the interest rate turnaround and highly profitable deposits, says Peter Barkow to Business Insider.

Profitable banks are more stable and better able to deal with financial crises, according to the management consultant.

The champagne corks are popping in Frankfurt: major German banks increased their profit before taxes by 25 percent to 23.9 billion euros in 2023. This was determined by the consulting firm Barkow Consulting.

For comparison: In the previous year it was 19.16 billion euros, in 2020 it was only 3.25 billion euros. “This means that profit before taxes is likely to have reached its highest level in 25 years,” says the analysis.

What are major German banks?

Major German banks are officially designated as “significant institutions” by the European Banking Authority (EBA). These are financial institutions that are subject to special supervision due to their size, complexity and systemic relevance.

In Germany, the following bankers fall into this category of “significant institutions”: Deutsche Bank, Commerzbank, DZ Bank, KfW Bankengruppe and state banks such as BayernLB, Landesbank Baden-Württemberg and Norddeutsche Landesbank.

Why are the profits of the big banks increasing so much?

The question that stock market investors are now asking themselves: Why has profit increased so rapidly? “This is essentially due to the interest rate turnaround and the fact that deposits are highly profitable again,” says management consultant Peter Barkow to Business Insider.

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An interest rate turnaround is the transition from low to higher interest rates. This is controlled by central banks to respond to economic changes. When interest rates rise, banks may charge higher interest rates on loans.

At the same time, risk provisioning is still limited, says Barkow. Risk provisions refer to the reserves that banks create for possible loan defaults. If banks expect fewer loans to default, they can put less money into these reserves, leading to higher profits in the short term.

What does the increase in profit mean? for you?

Why this news is important to you: “For the consumer, it primarily means that profitable banks are stable banks,” says Barkow. A bank that generates good profits is better able to deal with financial crises.

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