A renewed focus on profitability and strategic refocusing among German banks leads Moody’s Investors Service to believe that “the country's banks will not undergo a systemic crisis”, the rating agency said in a report on the German banking sector, published today.While Moody's is maintaining its negative outlook on German banks’ ratings, it does not believe a systemic banking crisis is imminent in Germany. It said this is because all banks are taking steps to improve their profitability by cutting costs, enhancing their risk management practices (to comply with Basel II) and rethinking their business models.
"The main challenge facing the German banking system at the moment is its very low profitability, which is the result of a combination of structural, management-related and cyclical problems," Moody's added.
The rating agency also noted that German banks' poor profitability can no longer be underpinned by hidden reserves, as these are now depleted.
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