Strategies for German Retail Banking

As Germany's banking sector languishes in its third year of downturn, Booz Allen Hamilton and Hering Schuppener Consulting surveyed industry leaders for their prognoses on a return to profitability. The research included interviews with representatives from savings, cooperative, and private sector banks, as well as financial analysts and financial journalists from Germany's leading newspapers.

Is Cost Cutting Still a Factor?

Seventy percent of German banks report that cost cutting is far from over, while the remaining 30% said they had no further plans to introduce new initiatives. In contrast, 100% of the journalists and financial analysts surveyed said they believed cost cutting was no longer an issue because the measures had already been instituted and the industry's focus had shifted to revenue improvement. "The banks are significantly more pessimistic about the need for additional rounds of cost cutting," explained Booz Allen Principal Markus Lammer.

Markus Lammer

Beyond cost cutting, German retail banks identified the following factors as key elements of their economic recovery:

• 86% of banks surveyed said they must adopt a selling orientation.
• 68% said pricing must be fine-tuned to reflect risk and product cost.
• 68% said internal processes must be simplified.
• 60% said the complexity of products sold must be reduced.
• 54% said a differentiated compensation model for employees must be introduced.

"Now is really the time to implement these changes," said Lammer, "mentalities have changed and the banks are recognizing the issues."

Earlier this year, Booz Allen proposed a comprehensive, value-oriented "fitness program" designed to help Germany's corporate banks become more agile, act more rapidly, and improve their risk management capabilities. Booz Allen believes that this profit improvement program, with some modifications, can also be applied to retail banking. "The results of the two studies show that large, universal banks in Germany are not fully differentiated between retail and corporate banking, because they report struggling with the same issues and embrace the same philosophy," said Lammer. "Whereas if you go to an American bank, you will find that retail and corporate banking are completely different."

International Role Models for German Banks

When asked which banks they looked to for best practices, one of the respondents stated, "You can't learn anything from a German bank." The retail banks identified U.S.-based Citibank (95 percent); Deutsche Bank (50 percent); and Diba (27 percent), the German subsidiary of the Dutch bank ING, as being among their top role models. "German banking is fundamentally reorienting itself towards an Anglo-Saxon culture," explained Lammer. "They don't look to each other anymore for best practices. It's about time."

For More Information

The Booz Allen-Hering Schuppener study "Was kommt nach dem Abschwung?," which is only available in German.