The first concerns interest business: it is no secret that the low-interest-rate environment is squeezing margins and deteriorating the outlook for earnings. But saying that, rising interest rates are not a panacea either. Contrary to what is often assumed, they do not bring relief initially, but exacerbate interest rate risk, and that is particularly the case in Germany.
Institutions will need to provide for this. The second reason why profitability is weak is, of course – and I won’t shy away from it – regulation. Regulatory standards were made far tighter in response to the financial crisis, setting the bar higher for banks.