Brief

Corporate Banking: The end of the growth illusion

Revenues in corporate banking will rise by only around 1 per cent per year until 2020.

By Dr. Christian Graf and Dr. Jan-Alexander Huber

First published on noviembre 07, 2018
min read


Executive Summary Revenues in corporate banking will rise by only around 1 per cent per year until 2020 Competition is already fierce, especially for enterprises from the large corporate sector Bain analysis reveals profitability of key products in corporate banking after allowing for full costs Too many hunters, not enough animals to hunt. This can best summarize the current situation underlying the corporate banking sector in Germany. More and more banks are relying on corporate banking which they believe holds the promise of high growth and sumptuous profits. But the market is only growing moderately, and lending remains the dominant business. The consequence is a merciless race for every customer. Competition is particularly harsh for the 20,000 or so enterprises from the large corporate sector that turn over EUR 25 to 250 million a year. In their efforts to win over smaller companies, major international banks eager to offer their products and services to regional companies across national borders are competing against savings banks and cooperative banks. The run on corporate banking across all institutional groups can be explained by two figures: at revenues of around EUR 27 billion, banks in Germany are currently chalking up earnings of around EUR 9 billion a year. Nonetheless, achieving profitable growth is proving a difficult undertaking. For the market is diffuse, and is growing steadily but slowly. Since 2014, earnings have risen by an average 1.4 percent annually - a meager rate considering the longest upswing being experienced in many years. What’s more, until 2020 the market will grow by an average rate of only around 1 percent per year to approx. EUR 28 billion. The profit makers - short-term loans and mortgage loans For the first time, the profitability of the most important products in corporate banking has also been examined. Besides the direct costs, this comprehensive full cost calculation also includes all indirect costs, such as those accruing for product experts and relationship managers. The analysis exposes enormous differences: a gap of 23 percentage points separates the profitability of the most profitable products – short-term loans and mortgages – and the least profitable products – working capital finance. While banks in Germany generate an average margin of 43 percent before cost of capital from the first two forms of finance, only 20 percent is generated from working capital finance.

Executive Summary

Revenues in corporate banking will rise by only around 1 per cent per year until 2020
Competition is already fierce, especially for enterprises from the large corporate sector
Bain analysis reveals profitability of key products in corporate banking after allowing for full costs

Too many hunters, not enough animals to hunt. This can best summarize the current situation underlying the corporate banking sector in Germany. More and more banks are relying on corporate banking which they believe holds the promise of high growth and sumptuous profits. But the market is only growing moderately, and lending remains the dominant business. The consequence is a merciless race for every customer. Competition is particularly harsh for the 20,000 or so enterprises from the large corporate sector that turn over EUR 25 to 250 million a year. In their efforts to win over smaller companies, major international banks eager to offer their products and services to regional companies across national borders are competing against savings banks and cooperative banks.

The run on corporate banking across all institutional groups can be explained by two figures: at revenues of around EUR 27 billion, banks in Germany are currently chalking up earnings of around EUR 9 billion a year. Nonetheless, achieving profitable growth is proving a difficult undertaking. For the market is diffuse, and is growing steadily but slowly. Since 2014, earnings have risen by an average 1.4 percent annually - a meager rate considering the longest upswing being experienced in many years. What’s more, until 2020 the market will grow by an average rate of only around 1 percent per year to approx. EUR 28 billion.

The profit makers - short-term loans and mortgage loans

For the first time, the profitability of the most important products in corporate banking has also been examined. Besides the direct costs, this comprehensive full cost calculation also includes all indirect costs, such as those accruing for product experts and relationship managers. The analysis exposes enormous differences: a gap of 23 percentage points separates the profitability of the most profitable products – short-term loans and mortgages – and the least profitable products – working capital finance. While banks in Germany generate an average margin of 43 percent before cost of capital from the first two forms of finance, only 20 percent is generated from working capital finance.