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Status: 02/16/2023 10:14 a.m
Fewer and fewer branches, fewer and fewer local contacts: Even customers of local banks increasingly have to put up with walking distances for a face-to-face conversation. Because not all problems can be solved well online.
Thanks to higher interest rates, Frankfurter Volksbank did better business last year. With a balance sheet total of 15 billion euros, the institute is one of the largest German Volksbanks. Last year it took over a smaller, perfectly healthy neighboring Volksbank. It was the 21st acquisition since 1990.
This is typical for local banks in metropolitan areas. In doing so, they must be careful not to lose their local ties. “You no longer come to the bank to open an account,” said Frankfurter Volksbank boss Eva Wunsch-Weber recently at a press conference, “but customers want to see people for the big issues. Many questions cannot be answered purely online, but need a face-to-face meeting at the end.”
Competitors become partners
There are essentially two types of local banks in Germany. The Savings Banks are public-law institutions owned by cities and districts. Volksbanken and Raiffeisenbanken belong to individual members. The members are historically called “comrades”, which is why one speaks of “cooperative banks”. 18 million people in Germany are members of a cooperative bank.
Traditionally, Volksbanken and savings banks see themselves as the main competitors. Only rarely is this old way of thinking overcome. If you drive through the Taunus near Frankfurt am Main and Wiesbaden, you will come across village bank branches that are operated jointly by the Frankfurter Volksbank and the Taunussparkasse. In order to save costs, joint small branches have now been operated in two dozen locations for the past three years.
While large banks can spread their costs among tens of thousands of customers, the situation is different for local banks: They have to manage with limited business opportunities. In the past few decades, local banks have already combined their IT and office work in the background. A number of branches were also closed. This allowed costs to be kept under control. At the Frankfurter Volksbank, the ratio of costs to income improved to the very good value of 66.5 percent in 2022.
Costs can hardly be reduced any further
Local banks often merge when one institute is paralyzed. It is customary among cooperative banks and savings banks for the neighboring institute to take over the weakening colleagues – including the board members – and to act as if the takeover was entirely voluntary. Costs are hardly reduced with such takeovers. “Once you reach a certain size, you don’t save much anymore,” says Martin Faust from the Frankfurt School of Finance.
In 1990 there were still 3,300 cooperative banks and 770 savings banks in Germany. In a small town like Bensheim an der Bergstrasse, three Volksbanks and two savings banks competed alongside commercial banks at the time. That’s long gone. Today there are 770 cooperative bankers and 360 savings banks left across Germany.
Ever larger business areas
Thirty years ago, the former in-house scientist of the cooperative system, Holger Bonus, wrote that local proximity, even “human proximity” is one of the basics of the business of Volks- und Raiffeisenbanken. These ideas are dissolving the more local banks are forced to turn their backs on the villages and merge into large units. There are already local banks in northern and eastern Germany that serve business areas with a diameter of eighty kilometers.
Where there are no more branches or ATMs, buses drive from place to place in some areas as mobile branches. Expert Faust points out that the fact that savings banks and Volksbanks are not close by doesn’t necessarily have to lead to declining business: “The alternatives are limited”. The big banks have long since closed their rural branches, niche providers like Santander or Targo have never been there.
It doesn’t work without commission business
Even if checking accounts now cost money, no local bank can make a living from just keeping accounts for private individuals. They have to sell expensive investments, mortgages, pension plans and insurance to wealthy customers in the country. That brings commissions to the banks. In the case of the Frankfurter Volksbank, this did not work well last year: the commission business fell by five percent.
Many medium-sized entrepreneurs want a bank that is not too big. Banking expert Faust sees opportunities for local banks here. Branches at every milk can are not necessary. “I’d rather have competent people five kilometers away than incompetent ones three hundred meters away.” For the really rich, the savings banks’ private banks (“Frankfurter Bankgesellschaft”) and cooperative banks (“DZ Privatbank”) would do a very good job, explains Faust.