Nord/LB has announced no intend to distribute in the year 2024.
Article: Cord Bockhop's Interview: Banking on a Brighter Future for Nord/LB
The new boss of the Sparkassenverband Niedersachsen and Nord/LB supervisory board member discusses the institution's future direction, economic downturn fallout, and local government's role
Cord Bockhop, the new head of the Sparkassenverband Niedersachsen and a member of the Nord/LB supervisory board, talks about Germany's leading regional bank's prospects, the consequences of the economic downturn, and the local government's tasks in the upcoming federal government.
Mr. Bockhop, unlike your predecessor, you do not have a professional background in the Sparkassen sector, but have worked extensively on the municipal side. How prepared do you feel for your new roles?
I've served as a mayor, managed financial matters at the Lower Saxony Animal Disease Fund, held a mandate in the supervisory board of a Volksbank as a mayor, and were active in the administrative boards of two Sparkassen as a district administrator. I bring a wealth of municipal politics experience with me. Municipal politics focus intensely on public services, and in many ways, the delivery of money to the region through loans and financial services is one of the fundamental areas of public services. Municipalities in Germany are indeed stakeholders in Sparkassen, so the connection between both sides - culture, as well as professionally - is very close. I am confident that local governments and Sparkassen share common goals.
What do you mean by that?
Municipalities and I believe that we should avoid living on credit, manage resources wisely, and take on debt only for essential, sustainable investments. In my tenures as a mayor, I pushed for debt reduction to prepare for major projects like expanding broadband coverage or addressing healthcare concerns and necessary structural changes. Closing hospitals and building new ones requires significant financing. It is much easier to secure funds without crippling debt.
The Sparkassenverband Niedersachsen and DSGV top positions are predominantly filled by former municipal politicians. What's your take on this?
In my opinion, it shows that the close bond between Sparkassen and municipalities is present everywhere in Germany. The associations aren't just run by a president or president alone. The managing directors are experts with years of leadership experience in Sparkassen institutions. Their specific expertise is what drives the association’s leadership.
The economic downturn is increasing risk provisions in savings banks, while cash-strapped municipalities are likely to demand higher dividends from their savings banks. How do you assess this tension?
The monetary policy trend of the ECB suggests that positive impulses for savings banks' interest results will decrease in the coming years – a reality not just for Lower Saxony. The institutions must be prepared for this. However, it's unfortunate when a municipality struggling financially tries to access funds from its savings bank to secure its future. In actuality, the financial obligations of municipal public services belong to the federal state, not individual savings banks. Yet, Lower Saxony's municipal financial situations have deteriorated severely in recent years.
In what ways have municipalities struggled?
For example, districts that had balanced budgets just a few years ago are now facing deficits of 30 million euros or more. One reason for this is the diminishing profitability in municipal hospitals. Individual municipalities grapple with the need to extract higher dividends from their savings banks to close budget gaps. However, these dividends prove to be grossly insufficient.
Do you foresee potential weakening of savings banks in the coming years?
It is in the interest of the municipalities that the situation of savings banks remains stable. There is no municipality in Lower Saxony that recklessly drains its savings bank's coffers.
Now, as a long-term local politician, what is it like representing credit institutions instead of municipalities?
The interests of credit institutions and their shareholders must always be exchanged responsibly. Municipalities and savings banks share the same boat. Although I spoke on behalf of municipalities in the past, I share a similar perspective as president of all 38 municipally-owned savings banks in Lower Saxony. But, it must be emphasized that it is not the role of savings banks to solve municipalities' financial problems.
What are your main goals in your new roles?
A priority should be reducing bureaucratic burden on savings banks, as red tape slows efficiency and clogs the economy.
Your predecessor shares the same sentiments. As a regional savings bank president, can you actually achieve anything?
Indeed, regulatory burdens, even if they affect customers and citizens, are increasing steadily. The role of a regional president is to continue raising awareness on this issue, ensuring that credit institutions serve their essential functions without being suffocated by unnecessary rules.
** regulation can also distort competition within the credit industry. This could happen if, for instance, ESG reporting obligations continue to apply in Europe while being terminated in the USA. What do you conclude from this?**
The regulatory landscape is becoming a peculiar world. On the backdrop of the European economy’s transition towards climate protection and sustainability, it's crucial that we establish impulses for improvement. This could entail reevaluating and easing regulations, bureaucracy, and the capital adequacy of loans.
A new EU Commission is about to take office, and a new federal government will be appointed shortly. What are your expectations for the governance landscape?
A combination of legislative and executive bodies will be reshuffled in both Europe and the US. Changes in the American government could alter the competitive conditions for the financial industry in Europe. We must remain resilient in Europe, however, instead of resorting to short-term austerity and additional burdens. A resilient stance necessitates clear rules that provide a stable framework. Proportionality remains a vital issue in this context.
Should the pressure to merge for smaller savings banks increase in Lower Saxony over the next few years?
From a business perspective, there's no savings bank in Lower Saxony in danger. Nevertheless, by 2025, the Stadtsparkasse Wunstorf, with a balance sheet volume of less than one billion euros, will merge with the neighboring Sparkasse Hannover, which has a balance sheet volume of over 20 billion euros. However, the merger isn’t due to financial struggles, but staffing issues.
Your predecessor oversaw a decline in the number of savings banks in Lower Saxony by over a dozen. What's next?
The decisions for mergers are, ultimately, in the hands of individual savings banks and their owners. It's hard to predict the trajectory of savings banks in Lower Saxony over the long term. By 2025, there will be 37 communal institutions.
How did savings banks in Lower Saxony fare in 2024?
Overall, things were relatively good, but slightly worse than the stellar business year 2023. The interest surplus is projected to be 2.7 billion euros or 2.04% of the average balance sheet (DBS). This is down from 2.8 billion euros the previous year. However, administrative expenses are expected to grow by about 80 million euros. In total, savings banks in Lower Saxony will sustain a cost-income ratio of slightly over 55%. The operating result before revaluation is projected to be 1.7 billion euros, a slight dip from last year’s level.
Lending trends?
The credit growth is increasing positively. Private customer segments are seeing stronger growth than commercial segments. The low growth isn't confined to investment loans but extends to operating loans as well, reflecting the challenging economic climate.
This leads to a higher risk provision for savings banks in Lower Saxony. Are some savings banks in danger due to increased credit risk provisions?
No, the escalating risk provision will not topple any savings bank.
If the ECB continues cutting interest rates, how likely is another prolonged low and zero-interest rate environment?
Based on current conditions, I don't anticipate a replay of the years prior to 2022.
What monetary policy framework are you referring to?
The inflation rate in the eurozone is nearing the central bank's target. I cannot pinpoint a suitable interest rate level. However, one crucial step would be to foster more investment incentives. This requires appropriate political framework conditions for increased entrepreneurship and investment opportunities.
That's a demand for the incoming government. Are you specifically referring to housing issues?
Germany must advance when addressing housing issues. The incoming government carries a significant sociopolitical responsibility. It must prevent certain income groups from being priced out of the housing market. We will either let Germany fail with housing or rebound from the situation.
How can things improve?
Through reduced bureaucracy, restrictions, and regulation. Through less climate protection controversy. Climate protection requirements should not be the biggest obstacle to creating more living space. House ownership should not crumble due to exorbitant acquisition costs. Why not temporarily offer more depreciation options for owner-occupied housing? Moreover, a political objective should be to raise the homeownership rate in Germany as a means of retirement security.
Concerning financing, would loosening the debt brake be appropriate to enable more investments?
When dealing with future investments, I view the temporary relaxation of the debt brake as essential.
Will a single building savings bank remain in the German banking sector, like the credit cooperatives?
A single building savings bank consolidation is not foreseeable. The mergers of 2023 demanded significant effort, the combined entities are expected to press on with their businesses. At this point, speaking of further mergers would be premature. Mergers are not a silver bullet; they must offer benefits to all parties involved.
What value does Nord/LB hold for savings banks in Lower Saxony?
Nord/LB presents a stable picture. The bank is demonstrating solid growth. I hope that their successful development continues following the completion of the restructuring phase. Nord/LB must navigate its future challenges on its own and aim for profitable growth.
When restructuring for Nord/LB is completed, the question of an exit for savings banks and Landesbanks who are part of the Fides societies will arise. At present, support societies (Fides) and the Lower Saxony Savings Bank Association are in agreement.
The restructuring of Nord/LB following the recapitalization at the end of 2019 was intended to last until 2024. When will the stabilization of the bank be completed?
Program-related measures, such as those associated with the restructuring program, have been implemented. This means that everything crucial for a stable Landesbank has been achieved as of now.
What do you mean by that?
Nord/LB is now a profitable bank. The results must remain within the bank for stabilization purposes. This extends to me, too, when we reach the point where the bank is capable of paying dividends.
Will Nord/LB pay dividends in 2024?
No, there are no plans to make such a payment.
When can we expect Nord/LB to start paying dividends?
I will not commit to a specific year. The bank is implementing a new bank steering system, and this is a multistage process involving mid-to-high three-digit million euro investments and taking several years in total.
In the support circle, how strong is the desire for those institutions to withdraw from the Nord/LB support circle earlier rather than later? However, a longer engagement also offers the chance to influence Nord/LB as a competitor on the market and participate in dividends. How do you evaluate the situation?
First and foremost, we in the Sparkassen-Finanzgruppe have agreed to stabilize Nord/LB with the aim of avoiding future support and capital strengthening. Everyone is aligned in this goal. Interests may differ when it comes to the duration of engagement. Certainly, the improved situation of Nord/LB allows us to engage in productive discussions surrounding the next steps.
How important is Nord/LB as a business partner for local savings banks?
Nord/LB is a crucial partner in the real estate, energy, and agricultural sectors. Although Nord/LB represents one of many market participants for local savings banks, it does play a role in connecting local entities in Lower Saxony. Nord/LB is our Landesbank.
Would your association consider taking ownership of Nord/LB?
We are a regional association of currently 38 independent and municipal savings banks and remain so. Ownership of a savings bank is not, nor will it be, part of our mandate.
About Cord Bockhop
Since 2021, Cord Bockhop has held the position of president of the Sparkassenverband Niedersachsen, taking on the responsibility of working closely with around 40 municipal member savings banks in his home state. His motto is “home game before away game,” reflecting the prioritization of local affairs. Beyond his commitment to Lower Saxony, Mr. Bockhop has accepted seats on the supervisory boards of Nord/LB and Sachsen-LB. His extensive background in municipal administration allows him to bring a unique perspective and invaluable experience to these roles.
The interview was conducted by Carsten Steevens. The full interview can be read at www.ourwebsite.de
- Cord Bockhop, despite not having a professional background in the Sparkassen sector, feels well-prepared for his roles due to his experience in municipal politics, serving as a mayor, managing financial matters, and holding positions in Sparkassen administrative boards.
- Municipalities and Cord Bockhop share the belief in avoiding living on credit, managing resources wisely, and taking on essential, sustainable debt. He emphasizes the importance of securing funds without crippling debt, citing examples like expanding broadband coverage and addressing healthcare concerns.
- The Sparkassenverband Niedersachsen and DSGV top positions, predominantly filled by former municipal politicians, are a testament to the close bond between Sparkassen and municipalities across Germany.
- Cord Bockhop anticipates regulatory burdens to continue increasing, slowing efficiency and clogging the economy. He believes that regional presidents should raise awareness on this issue to ensure that credit institutions can serve their essential functions without being suffocated by unnecessary rules.
- As the new president of all 38 communally-owned savings banks in Lower Saxony, Cord Bockhop's main goals focus on reducing bureaucratic burden on savings banks, fostering more investment incentives, and temporarily relaxing the debt brake for future investments.
