Overview of German financial system
Development stage: the evolution of German financial system is divided into three stages: early development, post-war reconstruction and development transformation: around 1870, Prussia unified Germany and catalyzed by the industrial revolution, the demand for long-term funds increased, and the financial mixed development model with universal bank as the carrier came into being; After the war, Germany entered the stage of economic revival, the banking system developed steadily, and the savings and cooperative banks developed to universal banks one after another; After the reunification of Germany, the macro-economic growth has gradually entered a downturn. The supervision has explored the development of the capital market, superimposed the impact of the financial crisis and the European debt crisis, and the banking industry has accelerated M & A integration.
Features: the service entity is the core goal, and the degree of financialization is relatively low. Compared with other major developed countries, the proportion of secondary industry is higher, and the added value of manufacturing / GDP remains stable at more than 20%. Strong manufacturing strength promotes the rapid growth of exports, and the trade volume / GDP is much higher than that of other countries. Financial policy tends to be conservative, and monetary policy focuses on controlling inflation and curbing excessive speculation. The enterprise has strong profitability, prefers profit rather than external expansion, and the leverage ratio of each segment is low. The low degree of financialization is reflected in that in 2020, the assets / GDP of financial institutions, the added value / GDP of the financial industry, the scale / GDP of private credit provided by the banking industry, and M2 / GDP are lower than those of the control countries.
Financial system structure: bank led financing system dominated by indirect financing, and the development of capital market lags behind. The total assets of German banking industry are 9.6 trillion euros (equivalent to 1 / 5 of Bank Of China Limited(601988) industry), accounting for 60% of the total assets of the financial industry, accounting for the absolute leading position. However, the development of capital market is relatively insufficient, the number of listed companies is small, the scale of stock market is small, and the volume of stock market transactions is low; Equity financing / GDP is much lower than that of other countries.
Organizational structure of the banking system
German banking institutions are divided into universal banks and professional banks. Universal banks are further divided into “three pillars” of commercial banks, public banks and cooperative banks, accounting for 41% / 25.5% / 12.3% of the total assets of the industry, and the market share of commercial banks has increased as a whole. The concentration of banking industry is relatively low, with Cr5 (2020A) only 34%, which is at the tail of European countries, but the share of large banks in the banking system, such as commercial banks, is relatively high. On the one hand, with commercial banks as the core, it forms a wide coverage through the structure of large international banks + small regional banks; On the other hand, the proportion of non-profit banks is relatively high, which together form the stabilizer of the financial system.
1) commercial banks are a combination of large international banks and small regional banks, belonging to the private law system. As a comprehensive all-round bank, large banks have a wide range of business and many overseas branches, but their industrial genes are weak and their market share in enterprise loans is low. They are committed to the transformation of investment banking.
2) public banks are positioned as traditional commercial banking businesses. On the one hand, asset management, it service providers and other subordinate companies are set up at the group level for centralized production and liquidation; On the other hand, guided by the principle of regional operation, the business characteristics of local savings banks are rooted in the local. Operate according to commercial principles, and its public obligations decide not to maximize profits.
3) cooperative banks are also regional banks with the nature of mutual assistance. The purpose of their establishment is to provide help to members in urgent need of funds. Compared with savings banks, they are more in number and smaller in scale. On the one hand, the overall business is still relatively conservative, and the proportion of corporate loans is lower, and the proportion of self-employed and individual loans is higher; On the other hand, the loan term has also been extended rapidly, and the proportion of medium and long-term loans ranks first among all kinds of banks; Business sinks into rural areas.
Profit model and characteristics of banking industry
Profitability: the ROA and roe of German banking industry are lower than those of other major countries in the world, and the average ROA in recent 20 years is only 0.1%, which is due to the drag of low interest margin and high cost expenditure. Moreover, due to the decline of leverage ratio (the ratio of total assets / self owned capital decreased from 25 times to about 15 times after 2000), the decline of roe is also higher than ROA, with an average annual rate of only 2.8% since 2000. Savings banks and cooperative banks are generally non profit oriented, but their ROA is significantly higher than that of commercial banks, and their performance is more stable. After the subprime mortgage crisis, the gap widens, mainly benefiting from the difference of customer groups, and less impacted by the financial crisis; The profitability of state banks is at the bottom due to non-profit orientation and wholesale business preference.
The reason for the low interest margin: it is damaged by the negative interest rate environment and it is difficult to improve the asset side pricing.
Asset negative & credit structure: the proportion of debt side deposits increased + demand deposits increased significantly, and the proportion of asset side loans increased + the proportion of long-term loans increased.
Reasons for high cost income ratio: high staff costs and rising proportion of science and technology investment.
Asset quality: low non-performing and low volatility, and low overall risk appetite.
Stones from other mountains
China is also an indirect financing system dominated by banks, but there are great differences in classification. For example, large state-owned banks have the highest market share in China, with comprehensive business but dominated by traditional deposits and loans, and the proportion of asset scale tends to decline. The market share of Chinese Listed Banks in the capital market is also much higher than that of Germany, but the overall contribution of German listed banks is high dividend rate.
Enlightenment from the development of German banking industry: first, a multi-level and wide coverage banking system helps to support the development of grass-roots regional economy. Second, adhering to the close relationship between banks and enterprises and the goal of maximizing non profits will help reduce the low volatility caused by the cycle. Third, innovation driven development is the first priority.
Investment suggestions:
In the medium and long term, China’s new economic development is driven more by advanced manufacturing and new consumption industries. The financing demand is relatively diversified, and the universal bank can more effectively meet its demand; Traditional industries play a more stable role in the economy and need more moderate service banks such as housekeeper banks. We believe that in the future, China’s commercial banks need more multi-layer reforms in the institutional structure and regulatory level to avoid excessive homogeneous competition and better serve entities. In this process, some strategic forward-looking banks have laid out in advance, or indirectly realize the one-stop service of mixed industry within the group through their own business layout, or realize partial coordination of business outside the balance sheet, or deeply cultivate in specific markets and customer groups to build their own competitiveness.
At present, the valuation of the industry is still low, and the macro-economy is also being repaired. With the improvement of economic expectations, the fundamental expectations of the industry are more stable. We maintain the industry’s “recommended” rating. We are still optimistic about strategic foresight, basic advantages and individual stocks with outstanding regional advantages: China Merchants, Ningbo, Xingye, Chengdu, Ping An, Hangzhou, Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) etc.
Risk tips:
The macroeconomic downturn exceeded expectations and the credit risk was intensively exposed; The implementation of the policy is less than expected; Industry competition intensifies risks.
