Frankfurt For German banks, construction financing has been one of the most important sources of income in the private customer segment for many years. However, due to high inflation and rising lending rates for the purchase or construction of real estate, this important business is now clearly deteriorating.
In December, customers would have taken out 10-year mortgage loans at less than one percent, now paying three percent or more, said Philipp Gossow, who leads sales for Deutsche Bank’s private customer division, at the Handelsblatt Future Retail Banking Conference in Frankfurt on Tuesday. “It changed incredibly fast in three months.”
Result: Many clients hesitate to buy real estate. The “slowdown” in construction financing is clearly visible, said Thomas Schaufler, Commerzbank board member for private clients. In addition to higher lending rates, an important role is also played by the fact that the current household costs of potential property buyers have increased due to inflation. That is why many customers asked themselves: “Is it still possible?”
On top of that, property prices have not fallen noticeably despite rising market interest rates, Schaufler said. “Real estate prices are not falling so much that people say they will level out.”
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For these reasons, Marion Höllinger, Private Account Manager at Hypo-Vereinsbank (HVB), is preparing for a volume decline in the construction finance industry. “There will be customers who say: I just don’t want to endure these installments in this environment,” says Höllinger. On the other hand, there are fewer problems with existing real estate financing.
Many clients have secured a fixed 30-year interest rate on financing their property, said a HVB board member. On the other hand, customers for whom the fixed interest rate expires in two or three years were “maximum thought”. Often, they are already trying to find long-term complementary financing today in order to have a “programmable installment amount” for the future.
Liane Buchholz, president of the Federal Savings Association of Westphalia-Lippe, assumes that property financing will start to stall by 2023 at the latest. “Today, for the first time in many, many years, we experience that there is no longer a need for building plots provided by municipalities,” she said at a banking conference on Monday.
>> Read here: Where real estate prices continue to rise, and where not – an overview
He is even more concerned that savings bank deposits are falling. Due to high inflation, 40 percent of savings bank customers could not save any more, Buchholz said. By the end of the year, it may be over 60 percent.
However, at Deutsche Bank, Commerzbank and HVB, deposits have been stable so far according to their own statements. Due to the negative interest rates of the European Central Bank (ECB), financial institutions have earned almost nothing from them in recent years. However, with the impending interest rate change, deposits are becoming more attractive again.
Several financial institutions have already lifted negative interest rates for their clients or are about to do so as soon as the ECB raises interest rates. There are also the first signs that the fight for deposits may resume among the banks.
“We are open to new money and now we are raising deposits again,” said manager Laura Wirtz of ING Germany.
How much and how quickly this happens depends primarily on how much the ECB raises interest rates. Wirtz assumes more moderate rate hikes and therefore does not believe that “we will see positive interest in mass savings already this year”.
Commerzbank has almost finished closing branches
There were also many discussions at Handelsblatt about the future importance of the branches. Commerzbank’s head of private clients, Schaufler, announced that his institute has almost completed the reduction of the branch network to 450. “There are one or two branches that are still closing, but otherwise finished,” he said. Germany’s second-largest bank announced in early 2020 that it would reduce the number of branches from 790 to 450.
Schaufler did not rule out further resignations from the service. “We now have a setup where we can imagine serving our eleven million customers,” he said. If, however, it turned out that during the koruna pandemic, customers got so used to performing all banking transactions electronically and did not visit branches anymore, other branches would be closed.
The number of banking branches in Germany continues to decline. While 20 years ago there were still over 50,000 branches, according to the Bundesbank, at the end of 2021 there were still almost 22 thousand. – most of them came from savings banks and Volksbanks.
Consulting firm Consileon expects that number to drop to 16,000 nationwide by 2030. “The deaths of the troops will continue,” said Ralph Hientzsch, managing partner of Consileon in Frankfurt. For customers, branches are only important if banks offer advice related to online banking, banking via app and telephone service there.
Deutsche Bank is also working on changes to its branch network: in the future, Deutsche Bank and the financial institution’s Postbank will increasingly benefit from shared branch infrastructure and be represented together in one building. Ten such locations are at the planning stage, manager Gossow said.
The Deutsche Bank and Postbank brands want to keep the largest German cash register: “We have two brands that are positioned diametrically.” The Deutsche Bank brand currently has around 400 branches. Postbank has about 650 branches, by the end of 2023 there should be 550.
Overall, banks face the challenge of combining internet banking, telephone and branch services. HVB has already implemented this and is now starting “an offensive in the securities business,” said Höllinger. For this purpose, the Institute opens a free securities account. The offer is addressed to people who decide on their own who also want to take advantage of the advice.
HVB currently has around 300 branches. You regularly look at the profitability of a location and see which model fits, said Höllinger. There is currently no plan to “close a number of branches”.
More: German banks still want to spend cash on hand – despite the high cost