Liikanen Group survey
Response by Kreissparkasse Esslingen-Nürtingen to the
Liikanen Group survey
Contact:
Marcus Wittkamp
marcus.wittkamp@ksk-es.de | Tel. no.: +49-711/398-44307
Kreissparkasse Esslingen-Nürtingen
Kreisssparkasse Esslingen-Nürtingen is one of Germany’s major savings banks,
with a business volume of almost €8.5 billion. It has been operating in the district
of Esslingen for over 160 years. Its dynamic development from its modest
beginnings in 1848 to its current significance as a leading regional bank is due to
its position in an economically strong, densely populated district and to its strategy
of offering financial services tailored to the market and customers.
The following summary contains the main business figures relevant to the
development of Kreissparkasse Esslingen-Nürtingen.
2010
2011
€8.454 million €8.464 million
€8.319 million €8.317 million
€5.385 million €5.623 million
€4.628 million €4.814 million
Business volume
Balance sheet total
Deposits
Loans
Investments in securities and in
€3.438 million €3.332 million
other financial institutions
Profit for the year
€11.2 million €11.6 million
Core capital
€438 million €549 million
Employees
1,658
1,662
Branches / self-service express banking facilities
107
107
Cash machines
141
142
Self-service statement printers
101
9
As a regional bank operating beyond local boundaries, the bank operates 273,203
private and business current accounts and 325,995 savings and fixed-term deposit
accounts. It has the densest branch network in the district and also has centres of
excellence for business customers, asset management, and property and
construction finance. With 1,662 employees, Kreissparkasse is one of the largest
employers in the district and, with 126 apprentices, is also one of the largest
businesses providing on-the-job commercial training.
The business district covers approximately 650 km 2 and has a population of
around 515,000, 92,000 of whom live in the town of Esslingen.
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Liikanen Group survey
Answers to the questions
1) To what extent are the current and ongoing regulatory reforms sufficient
to ensure a stable and efficient banking system and avoid systemic crises?
The fact is that the financial crisis will necessarily have regulatory consequences.
In our view, however, the reforms, whether imminent or already in place, will be
unlikely to create stability in the banking sector but will be more likely to make the
financial institutions more preoccupied with observing the regulations (internally)
than achieving their objective. For example, if we consider the requirements
arising from MaRisk and Basel III, one-third of them affect merchant banks and the
remaining two-thirds banks’ lending business. However, it was merchant banks
which were primarily responsible for the financial crisis. The disparate
implementation of Basel III is a further aspect. The USA is currently planning to
implement Basel III in around 20 major banks out of the over 8,000 financial
institutions but, on the other hand, it is being implemented in every bank in
Europe, or at least in Germany.
A further aspect is the distortion of competition, which has been increased by state
intervention in the banking market. The major banks are deemed to be too big to
fail, and banks bailed out by the state are engaging in cut-throat price competition,
which is endangering regional institutions such as savings banks. This calls the
three pillars of the German banking market into question. In this connection, the
liability obligation and guarantor’s liability to the savings banks has been
interpreted in the past as an inadmissible state guarantee. This guarantee now
exists de facto for the major banks.
2) Which structural reforms would improve the safety and efficiency of the
banking system in the EU in the near term? In the long term?
The current three pillars of the banking system are efficient as far as the customer
is concerned. The coexistence of the various structures on the German banking
market has proved its worth in times of financial crisis and spared German savers
any negative experiences. This should not be changed in any way. In this
connection, it was German savings banks in particular which have been
guaranteeing the supply of credit during the current crisis, by their regional
business policy and fulfilment of their public duty to provide credit, whilst the major
banks have been tending to withdraw and are now increasingly re-emerging as
local competitors. Nevertheless, almost half of loans to SMEs come from the
Kreissparkasse. The sustainable business model of the savings banks proves that
local confidence is the key to the long-term success of a financial institution.
Investments in the community must not be ignored here. Kreissparkasse
Esslingen-Nürtingen supports many bodies on its territory with over €5,500 per
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Liikanen Group survey
day, which proves that it would be much more difficult to hold social, cultural,
sporting and educational events without savings banks.
The business figures of Kreissparkasse Esslingen-Nürtingen show that savings
banks which have such a “local” business model are very successful - it approved
new loans worth €766.7 million in 2011. This means that the year-on-year
increase in the volume of loan approvals was again significant. The total volume of
loans to businesses, private individuals and the public sector (including debenture
loans) increased by 4.0%. On-balance sheet customer deposits - an important
figure, because savings banks refinance themselves according to the motto “local
banks for local benefit” mainly from regional customer deposits - were 4.4% above
the previous year’s figure in the 2011 financial year. Total savings (i.e. the growth
of all on-balance sheet deposits, including securities transactions) rose by around
€293 million. The stable operating result which this generated meant that
Kreissparkasse Esslingen-Nürtingen already meets the equity demands of Basel
III and has reserves which have been increasing for years - at 17.5%, the total
under §2, sub-paragraph 6 of the [German] Solvency Regulation (SolvV)
substantially exceeds the level of 8.0% set by law. The figure has consistently
been at this high level for years.
The introduction of a financial transaction tax in the short term is the only proper
way to achieve the structural reforms to contribute to security and efficiency in the
banking sector. If one considers the relationship between the current circulating
volumes of OTC derivatives and BIP, the necessity becomes more than obvious
and the role of the unregulated or barely regulated shadow banking ("conduit")
system very questionable. In the long term, the USA must contribute to
implementation of Basel III, particularly as it has not even implemented the Basel
II stipulations.
3) What are your views on the structural reform proposals to date (e.g. US
Volcker Rule, UK ICB proposal)? What would be the implications of these
proposals on your institution and the financial system as a whole?
The planned ban on US banks from dealing for their own account (US Volcker
Rule) may suppress demand for European government bonds and thus contribute
to the aggravation of the Euro crisis. The background is that if the US banks are
no longer allowed to deal in European government bonds at their own expense,
the demand for them will fall. This would be a major problem especially for
Portugal, Italy, Greece and Spain, because they are already finding it difficult to
sell their bonds.
The UK’s ICB proposals entail the risk of the bonds being downgraded. This would
be counter-productive, as we are of the opinion that the bond market has already
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Liikanen Group survey
priced in the changes in the economy. A further deterioration of the ratings would
entail higher funding costs for the banks. This would have direct consequences for
German financial institutions and their profit margins.
To summarise, we assume that these regulations are only intended and suitable
for major international banks. An opinion on this is also being issued by the
Deutsche Sparkassen- und Giroverband, the umbrella organisation of the savings
banks.
4) What are the main challenges of your financial institution as regards
resolvability? Are you implementing structural changes to your institution in
the framework of your recovery and resolution planning?
We have made a huge effort in recent years to improve the risk management of
our financial institution permanently. Difficulties for savings banks are generally
extremely unlikely. In this connection, we wish to mention the comprehensive
introduction of rating and scoring systems in all customer segments. We use the
credit portfolio view to manage our loan risk. Other types of risk are also controlled
strictly and efficiently using existing methods, and our risk coverage capability is
clearly adequate for covering existing risks.
In addition, as a savings bank, Kreissparkasse Esslingen-Nürtingen is a member
of the bank guarantee system of the German Savings Banks Finance Group.
Should a financial institution be unable to overcome difficulties itself, the bank
guarantee system will provide solvency and liquidity. Within the scope of risk
monitoring, these aspects are evaluated in every savings bank and the risk profile
of the respective savings bank categorised by a traffic light system. If a financial
institution has a red traffic light, additional escalation measures are implemented
to improve its risk situation.
Against this background, we consider the greatest challenges to lie less in the risk
situation and equity ratio, and more in fulfilment of the Basel III liquidity
requirements.
In general, however, we are auditing each of our business fields and considering
the structural changes required for our business model, e.g. as a result of Basel
III.
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