"It is important to me that economic and financial policymakers show a stronger commitment to Germany as a financial center," says Kolak on the day before the election of the Federal Chancellor and the swearing-in of the cabinet in Berlin. "Small and medium-sized institutions play a particularly important role and carry a great deal of responsibility for the real economy and for people. Regional small and medium-sized enterprises need strong local banks." Kolak is therefore encouraged that, in the coalition agreement, the ruling parties showed support for nuanced regulation of the financial markets that takes account of the business model, size, and lower risk of regional banks. "Relieving regional banks of bureaucracy and excessive reporting requirements is the right and proper approach," she adds. "But this now needs to be put into practice."
According to Kolak, the new finance minister will bear a huge responsibility: "This includes protecting the interests of savers in Germany. The mutualization of Europe's deposit insurance systems is unlikely to be in their interests." Commenting on Brexit, Kolak says: "A smaller European Union (EU) must strive to reduce its spending. Handing over more money to the EU without any conditions – as set out in the coalition agreement – is the wrong strategy."
The local cooperative banks played to their strengths in deposit-taking and lending business with their customers. They increased the volume of lending by an impressive 5.8 percent to €558 billion as at December 31, 2017. This rise was primarily driven by brisk demand for personal home loans. Real-estate loans to retail customers alone advanced by 5.2 percent to €233 billion. As a result, almost one in four euros borrowed under home loans in Germany came from a cooperative bank. Deposits from customers were up by 4 percent to €662 billion at the end of 2017. The continuation of the European Central Bank's low-interest-rate policy led to particularly strong growth of sight deposits. Liabilities repayable on demand rose by 7.3 percent to €424 billion. The aggregated total assets of all cooperative banks grew by 4.7 percent to €891 billion. The Tier 1 capital ratio increased to an encouraging 14.9 percent.
The number of institutions had fallen to 915 at the end of 2017, which was 57 fewer than a year earlier and was due to banks being merged. With a total of 11,108 branches (head offices and local branches), the local cooperative banks are firmly rooted in their regions.
Despite the strong growth in lending, interest income declined by around €1.2 billion in 2017. At the same time, interest expense went down by approximately €1 billion, enabling the institutions to offset some of the decrease in interest income. Consequently, net interest income fell by 1.6 percent to €16.3 billion. Encouragingly, the cooperative banks were able to increase their net fee and commission income by 8.1 percent to roughly €4.9 billion. The ongoing phase of low interest rates meant that agency and brokerage income in the securities and fund business rose in 2017 because customers opted for investment products with higher expected returns. The insurance business and other agency and brokerage business operated by the product specialists in the Cooperative Financial Network also had an impact, as did income from fees for account management and payments processing.
The local cooperative banks' active management of costs was reflected in the slight drop in general and administrative expenses, which fell by 0.7 percent to €14.3 billion in 2017. Staff expenses decreased by 0.7 percent year on year to €8.6 billion. In 2017, the cooperative banks employed 146,500 people. This year-on-year decrease of 3.0 percent was almost entirely due to employees leaving for age-related reasons. Around 10,150 young people are currently receiving comprehensive training in the cooperative banking group, giving a ratio of trainees to total employees of 7.0 percent.
Operating income climbed by 3.1 percent to an expected €6.9 billion in 2017. The local cooperative banks' operating profit before gains and losses on valuation rose by 2.3 percent to €7.4 billion. Gains and losses on valuation are expected to amount to a net loss of €94 million. Operating profit including gains and losses on valuation stood at €7.3 billion in 2017, which meant the local cooperative banks maintained the high level reported for 2016. Preliminary net income for the year before taxes came to €7.2 billion, down by 6.6 percent compared with 2016. Income taxes amounted to €2 billion in 2017. The local cooperative banks transferred a sum of €3.6 billion to the fund for general banking risks in 2017, thereby strengthening their already sound capital adequacy. Their net income for the year after taxes is expected to be €1.6 billion, which is on a par with the previous year.