Moody's keeps negative outlook on German bank sector

FRANKFURT: International ratings agency Moody's maintained on Thursday its negative outlook on the German banking sector owing to the lasting effects of the financial crisis and slow structural reforms.

"Despite significant steps towards stabilisation and the strong rebound of the German economy since the end of the first quarter of 2009, Moody's outlook on the German banking system remains negative," lead analyst Katharina Barten said in a statement.

Leading economic institutes forecast Thursday that Europe's biggest economy would post record growth this year and that Berlin would bring its public deficit below the EU limit in 2011.

But Barten noted that the German banking system was among those hardest hit by the global financial crisis and that "structural change has been slow to-date and is unlikely to accelerate in the foreseeable future."

The sector is highly fragmented and subject to overcapacity and intense competition, Moody's added.

Banks also suffered from high debt levels, exposure to cyclical industries and volatile markets, and pressure on earnings as they reimbursed state support received during the crisis.

Although some German financial institutions were now in much better shape following deep restructuring, "it will take time for the banks to reap the benefits of these efforts," Barten said.

She noted that the outlook did not concern local cooperative banks and savings banks that "have shown remarkable resilience throughout the recent financial crisis."

Those banks, which dominate the retail sector, were expected to remain entrenched in the market and post "relatively robust" performances in the future.