And the fact that interest rates are expected to remain low for the foreseeable future means that the outlook for profitability here and in wide swathes of Europe will be more on the gloomy side. Germany is particularly affected by the low level of interest rates because most German institutions have business models which are highly dependent on interest rates.
The recent lowinterest-rate survey conducted by the Bundesbank and BaFin has shown that small and medium-sized German credit institutions are expecting a 9% drop in their profits 3from 2016 to 2021; this represents a whopping 16% decline in the return on assets over the same period. 4 One major cause is growing competition in the low-interest-rate environment.