Major savings bank is counting on the group’s willingness to invest
Major savings bank is counting on the group’s willingness to invest
Two turns and 20 years have already passed. Of course, it won't feel quite like that to Alexander Wüerst when he steps down as Chairman of the Board of the Kreissparkasse Köln (KSK) at the end of the year. After all, the 64-year-old has spent his entire professional life at the largest municipal savings bank in Germany. He certainly couldn't complain of boredom. „For me, the most remarkable thing is that savings banks still exist despite the enormous changes – keyword: digitalization,“ says Wüerst in an interview. „That was and is a frontal attack on our traditional business model.“
Designated successor does not expect it to be a walk in the park
But the fact is that the wheel keeps turning and is picking up speed. „The biggest challenge in the future will be to keep pace with the changes. We have created good conditions for this,“ says Thomas Pennartz, Wüerst's designated successor at the helm of the board of directors, with conviction. Nevertheless, it will not be an easy ride, even though the 60-year-old emphasizes that, unlike some of its competitors, Sparkasse is active on all channels – whether online, by telephone, or in branches.
New competitors
The quality is good across all channels, but there is still potential for improvement in some areas: „Today, our competitors are no longer the traditional banks from Germany and Europe. Our competitors come from all over the world and are often not even banks anymore. We need to take action here,“ he demands.
Pennartz is primarily concerned with investments within the financial group. The former managing director of the Rheinischer Sparkassen- und Giroverband (RSGV) has no doubt that, given its size, the Kreissparkasse needs to go the extra mile. But the basic framework must come from the group. „It could be difficult to meet the challenge if we are not willing to invest. However, I don't see that happening,“ says Pennartz.
Small bank regime as a challenge
Another aspect that is emerging as a challenge for the financial group is the small bank regime envisaged by the banking supervisory authority. In a joint paper, BaFin and the Bundesbank propose a drastic simplification of the regulatory requirements for institutions with total assets of less than 10 billion euros and low-risk business models. The danger here is that the group will be divided into small and large institutions. „The challenge is dealing with the new regulations, which are intended to make things easier for smaller institutions. The changes required in all systems used must ensure that they can continue to be used by both small and large institutions,“ says Pennartz, outlining the problem.
IT and reporting outsourced
The reason for this is that the Kreissparkasse has outsourced its IT and reporting to the central IT service provider Finanz-Informatik. „The systems must continue to be developed in such a way that they remain suitable for large institutions,“ Pennartz demands. This could be a topic for discussion, as only just under 10% of the 342 savings banks nationwide have total assets of more than 10 billion euros.
The balance sheet total also plays a role for the Kreissparkasse in a completely different dimension. For years, the Cologne-based bank has been hovering just below the threshold of 30 billion euros, above which the ECB takes over supervision. If nothing unusual happens, this will be the case on the 2025 balance sheet date. The balance sheet total currently stands at 30.3 billion euros. Preparations for the change in supervision began years ago. „It's good that we will soon come under the supervision of the ECB, after all, we have been preparing for this for four years. Otherwise, the momentum will slow down,“ says Wüerst. More than 40 people are now working on this issue alone, and the number is expected to rise to 60.
Customer business takes priority
The fact that the Kreissparkasse is so eager to come under the supervision of the European Central Bank (ECB) is met with surprise by other large savings banks. But Wüerst has a different assessment. In view of the strong growth before the interest rate turnaround, Corona, and the outbreak of the war in Ukraine, he considered it urgent to take a closer look at the change in supervision: „Alternatively, we could only have given up customer business. Neither the board nor our sponsors wanted that.“ The fact that growth slowed down after the various exogenous shocks was not foreseeable.
However, Pennartz will have to deal with the consequences of the decision. He reassures himself that the bank is well prepared, even if many details still need to be agreed with the supervisors. The important thing is that the ECB supervisors understand the business model. „I would have made exactly the same decision because our balance sheet is dominated by customer business,“ he says, backing up Wüerst. Both bankers agree that limiting the growth of the balance sheet total would have violated the Sparkasse's core mission. „When we collect customer deposits, we want to lend them out in the lending business and not invest them in the capital market,“ explains Pennartz, and Wüerst adds: „Our own investments are purely liquidity reserves. We do not have a strategic investment portfolio.“
But what to do when companies put the brakes on investment?
„All regional institutions have placed high expectations on the transformation in the lending business. So far, we have seen little of this,“ Wüerst notes. But hope dies last. „We see that there is a considerable need for transformation, especially in municipalities and municipal-related companies,“ says Pennartz. Large volumes of financing will be required there in the coming years. „We want to handle that within the group.“
Wait-and-see attitude in the private sector
The situation is different for companies. „In the private sector, there is also a need for transformation. However, there is currently still a wait-and-see attitude there,“ says Pennartz. According to Wüerst, this is mainly due to political and regulatory reasons: “There has been a failure to generate a spirit of optimism around ESG; instead, a mood of prohibition has emerged. Now we are lagging behind the goals and requirements," Wüerst analyzes. It is important to wait until there is more clarity about the future legislative and regulatory situation.
According to Pennartz, there is consensus that the transformation that has begun must be continued. But in the end, it all comes down to the framework conditions: „I would welcome it if we could regain intrinsic motivation and not just motivation driven by regulatory requirements.“
