Financial Sector Assessment Program-Technical Note-The Determinants of Bank Profitability

Germany: Financial Sector Assessment Program-Technical Note-The Determinants of Bank Profitability



Publication Date:

August 16, 2022

Electronic Access:

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Summary:

German bank profitability is low by international standards. Although German banks rank more favorably in risk-adjusted terms, as low profitability is partially compensated by lower volatility of returns, their profitability ratios remain low. On other measures (such as returns on assets, equity, and risk-weighted assets), German banks, on aggregate, rank among the least profitable in Europe. Several factors affect bank profitability, including a complex tiered industry structure with barriers to entry and an explicit mandate of a large part of the banking system – cooperative and savings banks – to maximize welfare of stakeholders rather than profits.

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