Dhe chairman of the board State Bank of Hesse-Thuringia, Thomas Groß, sees Germany at the beginning of a “marked recession” that could last until mid-2023. It’s no longer a question of “if”, it’s just difficult to predict how deep the decline in economic output will be. “A time of great uncertainty lies ahead of us,” Groß told journalists. Economic output (GDP) will probably fall in the second half of 2022 and the first half of 2023 because the consequences of the Russian war are great.
With this assessment, Groß is by no means alone. The CEO of Deutsche Bank, Christian Sewing, recently said that he now has one recession consider inevitable.
As early as the first half of 2022, Groß observed that corporate customers were careful to hoard supplies in view of the torn supply chains. The larger camps would have led to higher financing requirements. Contrary to expectations, lines of credit that had only been agreed for emergencies or presented to the rating agencies as proof of excellent creditworthiness were drawn down. “The capital requirements of companies are high,” said Groß. This is an opportunity for his bank, which belongs to savings banks in North Rhine-Westphalia and Hesse, as well as in the states of Hesse and Thuringia. But Helaba will not finance all companies and all sectors. It’ll be a series of bankruptcies give, predicted Gross as a result of the expected 12-month recession.
Significant loan defaults expected
This recession will not leave the banking industry and Helaba unscathed, said Groß. He expects significant loan defaults, but not in 2022, but only in 2023 and possibly in 2024. Helaba has already prepared for stormy times with general value adjustments (“top-level adjustments”) in the first half of 2022. However, it still has hardly any defaults on individual commitments. That’s why Groß emphasized: “We are sticking to our forecast for the full year 2022 with a profit before taxes of 500 million euros.”
In the In the first six months of 2022, Helaba had already earned EUR 327 million before taxes, EUR 34 million more than a year ago. Around 80 million euros were charged to the pre-tax profit as a general value adjustment on the loan portfolio in risk provisioning, after all “we are going into the recession with open eyes”, as Groß said.
Inflation spurt drives up costs
Helaba is on course, Groß confirmed, especially in these turbulent times. With the downsizing as a result of the “Scope” efficiency program stretching over several years, in which 400 of the 2,700 jobs at the Landesbank were cut and the first management level below the board was halved, the company is on the home stretch. It will be fully implemented by the end of 2022. This means that Helaba has a lower cost basis and is now well equipped to cope with the current surge in inflation and the digital transformation. Over the next three years, a three-digit million amount will be invested in modules of a core banking system from the Walldorf-based software manufacturer SAP in a “first wave”. Two more IT investment waves are to follow.
Cooperation with fintechs and state banks, such as that recently achieved with LBBW in Stuttgart by dividing up business areas, will remain a “red thread” in Helaba’s strategy, announced Groß. Groß sees himself as close to the goal of better balancing the business model of the Landesbank, which is considered interest-sensitive and heavily dependent on the real estate business. Commission income has increased by 12 percent annually over the past five years, and by as much as 20 percent in the first half of 2022. Commissions, apartment rental income and sales profits in the project real estate business have recently made up 48 percent of gross income, interest-bearing business 52 percent, said Groß.