“The banks are likely to turn in stable earnings through the remainder of 2025 and into 2026, driven by broadly stable net interest income and robust growth rates in net fee and commission income,” says Julian Zimmermann, analyst at Scope and author of the rating agency’s German Banks Outlook 2026. 

The banks have a good grip on costs which should lead to further convergence with internal efficiency targets and EU peer levels, although German banks’ cost-to-income ratios (CIR) will stay structurally higher than in other jurisdictions. Bank lending spreads remain healthy and lending volumes are recovering, though that is from very low levels, says Zimmermann.

“We expect the aggregated return on risk-weighted assets (RoRWA) of banks in our sample to improve to 2.2% in 2025, from 1.7% in 2024. Discounting for the denominator effect – RWAs declined materially due to the first-time application of CRR III in January 2025 - RoRWA should still improve to around 2.1%,” he says.

German sector still faces relatively high cost of risk

However, the cost of risk will remain relatively elevated in a still uncertain macroeconomic environment – shifting US trade policy, geopolitics – even though it looks manageable overall.

“IFRS stage 3 exposures have increased from 1.3% in Q1 2023 to 1.9% in Q2 2025, and Stage 2 exposures have increased to 15.4% from 9.6% over the same period,” says Zimmerman.

Credit quality has deteriorated the most in manufacturing, real estate and the wholesale & retail sectors. The proportions of Stage 2 and Stage 3 exposure have stabilised since peaking in Q4 2024, but a re-crystallisation of risks, for example in export-oriented sectors or in CRE would materially weigh on banks’ results.

Savings, cooperative banks to benefit from reform push

Reforms are continuing to strengthen cohesion in the German savings and cooperative bank systems. Aggregate performance is expected to remain robust in both systems.

The start of contributions to the additional, risk-based support fund in the savings banks’ institutional protection scheme (IPS) will modestly weigh down on members’ stand-alone profitability but also incentivise lower-risk business models which is credit positive.

“The cooperative banking sector is improving governance and risk monitoring, among other elements, drawing on lessons learnt from recent support cases in the sector’s IPS, some of which were relatively high profile,” Zimmermann says.

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