"Once again, the German cooperative banks have demonstrated that their business is sustainable and have outperformed the market in terms of growth in lending and deposit taking. The membership intake has remained strong for years, which is a clear expression of the public's trust in the cooperative business model," declared Uwe Fröhlich, President of the National Association of German Cooperative Banks (BVR).
With regard to banking union, the BVR President is calling for European politicians to think back to their original objective of regulating systemically important banks and high-risk business models: "It cannot be right to take the heat off the major European banks at the expense of the regional banks. Nor is it sensible to keep failed European banks afloat by encouraging them to lend to each other so we are again emphatically calling for contributions to the resolution fund to be based on risk and the size of the bank. Otherwise, the cooperative banks and savings banks that stabilized the financial markets in the crisis will be the ones funding the resolution of their unviable European rivals."
Strong partners in lending and deposit taking
Last year, the volume of lending by the cooperative banks to their 30 million or more corporate and retail customers grew by €19 billion to €462 billion. This was a rise of 4.3 per cent which builds on the record-breaking levels of the two previous years. Their volume of lending to companies and the self-employed rose by 4.1 per cent, while the market as a whole contracted by 0.5 per cent, and their market share increased by 0.8 percentage points to 17.2 per cent. In the retail sector, the lending volume rose by 4.4 per cent to €242 billion, while the market as a whole grew by just 1.4 per cent. The result was a market share of 22.8 per cent, a rise of 0.6 percentage points on 2012 driven by long-term home loans. Despite tough competition for German savers, the cooperative banks also gained market share in the deposit-taking sector. Last year, customer deposits were up by 3.5 per cent to €561 billion and the cooperative banks' market share grew by 0.7 percentage points to 17.0 per cent. Customers' efforts to save and the huge popularity of bank deposits as a secure, liquid form of investment explain the rise, with demand deposits up by 11.1 per cent year on year to €298 billion.
Income on the rise
Despite the long period of low interest rates, net interest income generated by the local cooperative banks rose by 2.2 per cent to €16.7 billion last year. Net fee and commission income also rose slightly, climbing by almost €100 million to €4.2 billion, driven primarily by the huge level of demand among customers for home savings and insurance products as well as brisk demand for investment funds.
In terms of costs, the local cooperative banks made further efforts to become more efficient and to improve their own cost structure. Overall, administrative expenses edged up to €13.9 billion, a small increase of 0.8 per cent. Staff expenses rose as the result of new regulatory requirements and extensive reporting obligations, which hit small and medium-size institutions particularly hard. The cost/income ratio improved a little in 2013, increasing by 1 percentage point to 66.3 per cent.
Partial operating profit was up by 5.2 per cent to €7.1 billion. Operating profit before fair value measurement climbed to €7.5 billion compared with €7.2 billion in 2012. The local cooperative banks reported fair value gains of around €200 million in 2013. Compared with 2012, fair value losses on the measurement of the cooperative banks' lending business were down by almost 11 per cent to €375 million and consequently stood at their lowest level since 2003. Following substantial reversals of impairment losses in 2012, the level of fair value losses on the measurement of securities in 2013 was moderate in historical terms, totaling €450 million, which is approximately the average for the past ten years.
Healthy capital base
A total of €2.9 billion was transferred to the fund for general banking risks, which once again demonstrates the robustness of the cooperative banking group as it gears up for the new Capital Requirement Regulation (CRR). The capital base reported on its balance sheet is equally robust. During 2013, there was a significant increase of 5.2 per cent in the institution's equity, taking it to €42.6 billion, and a sharp rise of 5.7 per cent in reserves which totaled €31.8 billion. Paid-up shares in cooperatives (subscribed capital) also grew by 3.9 per cent, to €10.8 billion. Overall, the local cooperative banks have sufficient leeway for growth to meet the borrowing requirements of both retail and corporate customers.
Tier 1 capital increased by €5.4 billion to €53.1 billion, pushing up the Tier 1 capital ratio by 0.9 percentage points to 12.8 per cent. The solvency ratio now stands at 16.7 per cent, having risen by 0.8 percentage points.
In 2013, the local cooperative banks generated net income before taxes of €7.4 billion As in the previous year, income taxes remained around €2,0 billion. After additions to the fund for general banking risks, net income amounted to €2.6 billion, a rise of 15.1 per cent on 2012.
In 2014, the cooperative banks expect net interest income to fall slightly due to persistently low interest rates. Current regulatory action will result in further increases in administrative costs. By contrast, the economic environment will provide a boost for the real economy and the German Mittelstand and, consequently also for the cooperative banking group.