Large German banks are among the least efficient in Europe, according to data from S&P Global Market Intelligence.
In a sample of the 50 largest banks on the continent in terms of assets, the four with the operating ratios at the end of the second quarter included three German lenders.
Commerzbank AG reported a ratio of 107.09%, up more than 30 percentage points from 70.75% a year ago, and the highest among its European peers. The bank said the rise was due to costs related to the restructuring of 976 million euros. As part of its “Strategy 2024”, Commerzbank aims to achieve an operating result of 2.7 billion euros and a return on equity of around 5% in 2024 via an aggressive reorganization, which includes an 80% staff reduction and the closure of 190 branches by the end of 2023.
German lender Norddeutsche Landesbank Girozentrale had the third highest efficiency ratio of 85.71% at the end of June, while Deutsche Bank AG’s ratio improved by 544 basis points on an annual basis, but was always the fourth highest. The cost-to-revenue ratio measures the cost of running a business as a proportion of operating profit, and lower ratios indicate a more profitable business.
On an aggregate basis, German banks also had the highest average cost-to-income ratio among some European countries at the end of 2020, at 74.34%. Norway reported the lowest average efficiency ratio in the sample, at 42.10%.
The efficiency ratios of European banks vary widely across the region and depend on various factors such as market competitiveness, labor laws, population densities and the speed of adoption of digital banking services, according to research by S&P Global Ratings.
Swedish banks Skandinaviska Enskilda Banken AB (publ) and Swedbank AS had the lowest ratios in the sample. But Russia’s Sberbank of Russia and VTB Bank PJSC recorded the weakest, at 31.52% and 36.11%, respectively. Overall, the average cost-to-income ratio of Russian banks stood at 43.25% at the end of 2020 and was the second lowest in Europe.
Sber posted record profits in the first half of the year and attributed its success in part to its artificial intelligence-driven approach to profitability and digitization. Just under 70% of its 100 million customers use its online services at least once a month, and the lender plans to leverage it to expand into areas other than banking, such as e-commerce.
Danish company Nykredit A / S was the third most efficient European bank in 2020 with a ratio of 39.36%, despite an annual increase of almost 10 percentage points from 29.04%.
Credit Suisse Group was the second least efficient bank on the list, with a cost-to-income ratio of 88.98%. The Swiss lender is dealing with the fallout from its involvement in the disaster-stricken companies Archegos and Greensill, and has recorded substantial losses and provisions as a result.