D.he air is getting thinner, and that worries Matthias Hildner. The Wiesbadener Volksbank traditionally presents its figures for the previous year in the first week of the new year, and despite a result that was satisfactory for him, the chairman of the board of the cooperative institute used the date for a reminder. “The general conditions for banks are tough,” said Hildner, and this is primarily due to the permanently low interest rates, which, according to Hildner’s forecast, will not recover in the next few years either. “That takes the bank’s air to breathe.”
The company has to do a lot of altitude training in order to be able to get along well with little oxygen, added Hildner, or to put it another way: the company from the state capital has to work hard to cope with the banking environment.
The Wiesbadener Volksbank is not alone with this concern, the entire industry in Germany is in a process of transformation that has consequences. Costs down, earnings up, that is the simple business calculation – but it is expressed faster than implemented.
No brand dilution
At Wiesbadener Volksbank it includes a number of measures. In the first place, due to current events, mergers. At the end of October, the Wiesbaden-based company and VR Bank Untertaunus, based in Idstein, announced their merger. Hildner justified the merger, which is to be carried out by the representatives’ meetings of both houses in May with retroactive effect to the beginning of the year. But if you’ve been cooperating for so long, why is the merger only now?
Hildner answers that too with the economic environment. Above all, the low interest rates and the resulting shrinking investment profits of the banks on the capital market ensured that the financial institutions had to save costs. The merger is now intended to ensure that, for example, only one HR and one credit department are required, and overlaps in the business area are also resolved. “Nobody knows what the ideal company size is for a bank,” says Hildner. But it is becoming more and more difficult for smaller houses to exist independently in view of the complexity of the challenges, which also include regulatory requirements and, above all, digitization. “I am sure that the consolidation of the industry will proceed at a rapid pace.” By contrast, Wiesbadener Volksbank, which Hildner has been managing since 2013, is currently not planning any further mergers.
The cooperative-based institute also does not follow the model of sharing branches with savings banks, in contrast to its colleagues at Frankfurter Volksbank, who do common cause with Taunussparkasse. Hildner thinks this approach makes little sense for his more urban business area and also points out that such a cooperation could dilute the brand. “The question of where the difference should actually be is not that far-fetched,” he says.
ATMs yes, advice no
In addition to mergers, there are other approaches for the Volksbank to save costs, for example with branches. In any case, the number of customers who do their banking there has been falling for years, while digital access is increasing. The corona pandemic has intensified this development. That is why the money house converted five staffed branches into service points in the autumn, where advice is no longer possible, but only ATMs. For good advice, it is reasonable to have to go a little further, says Hildner. In addition, the banking business, and therefore advice, has become more complex, and the trend is towards well-trained staff in central positions. This leaves the Volksbank with 23 branches and ten self-service points.
With this number and currently just under 600 employees, Volksbank is entering a year that will continue to be shaped by the Corona crisis. In 2020, the amount of loan defaults was not noticeably greater than before, and Hildner does not expect that for 2021 either. That sounds surprising in view of the crisis. However, in recent years, as Hildner calls it, the Wiesbadeners have already developed into a kind of mortgage bank and are therefore less affected by the consequences of the pandemic than probably other institutes. “We benefit from the fact that the proportion of traditional corporate financing in our lending business is below average,” says the CEO. Instead, real estate is financed, especially of a private nature. And restaurants and retailers, both severely affected by Corona, are not represented in the company’s loan portfolio.
This also prompted Hildner to point out that he could still compensate for the bank’s lack of oxygen, although he was not sure how long that would go on. Finally, the operating results are declining (see table). At some point you will probably not be able to avoid having to think about further measures, such as negative interest rates for deposits from private individuals. But that still takes a while, so Hildner. At the moment, he said, keeping in mind the thin air in the banking industry, “we are well trained”.