In a scenario of economic recession and structural rigidities, Dresdner Bank, a major German bank of international repute, is also facing severe problems of profitability and growth like any other bank of Germany. It has been embarking upon restructuring through consolidation during the last two-and-half years. It has joined hands with Allianz, an internationally reputed insurance company, for cross-selling opportunities. It has been withdrawing from non-core business activities, taking cost-cutting measures including staff retrenchment. It achieved partial success in cutting costs and consolidating operations by third quarter of 2002. However, it has a long way to go to improve profitability.
It has assured tax cuts, rationalization of subsidies, labor reforms and increase in revenues to ignite growth. But its high fiscal deficit and lack of political will may not facilitate transformation of these assurances into actions.
During a recession in the economy, German banks are not doing well. Credit growth is hardly 1%, in a country where reliance on bank loans by corporates is very high. There are more and more corporate failures, adding to the losses of the banks, whose operations suffer from narrow spreads for historic reasons. The provisioning needs for equity exposures are raising in the face of falling equity markets. Non-fund incomes are dwindling due to the poor performance of the corporates. While these challenges have not yet acquired crisis proportions, the banking sector's profitability is obviously under tremendous strain with rising costs and provisions along with falling incomes.
Germany is on a reform path to come out of the recessionary phase, so are its banks. Banks are reducing their staff, pruning other costs and consolidating to secure synergies. Their risk management system has become more efficient.
Dresdner Bank, a major bank of Germany, is no exception in embarking upon radical structural changes through certain strategic initiatives. |
