Shrinking Sparkasse

Saving the Savings Banks

Garbenheim will soon lose one of its main attractions. Source: Handelsblatt/Bostelmann
Garbenheim will soon lose one of its main attractions.
  • Why it matters

    Why it matters

    Often considered the bank of the little guy, the cost-cutting plans and branch closures of Germany’s savings banks could undermine their long-term future.

  • Facts


    • Low interest rates are weighing on banks across the euro zone – but especially those retail banks that rely on deposits and customers.
    • Experts predict a massive reduction of bank branches in Germany – about a quarter by 2020 compared to 2007.
    • Savings banks in some regions have turned buses into mobile banks, rolling from village to village. Others are joining forces with cooperative banks.
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Waldemar Dross only needs a few minutes to walk to his local savings bank branch. To the left, then two blocks down the hill, past the renovated primary school and then to the right.

The branch of the state-backed savings bank, known as “Sparkassen” here in Germany, is located next to a dentist, a baker and a grocer in the middle of Garbenheim.

But this provincial town in the central German state of Hesse will soon loose one of its main attractions. The bank will soon close its doors for good.

The decision has enraged Mr. Dross, a measured man with white hair and a cleanly cropped beard, who since 2011 has been the councilman of this 2,000-strong town, which lies on the outskirts of the larger city of Wetzlar.

“Sparkasse has made big profits for years. Then there’s a bit of a rough patch and suddenly its closing branches,” he said.

Mr. Dross is disappointed. “What Sparkasse is now doing is a good method to lose customers.”

His local branch is part of the regional savings bank group, Wetzler Sparkasse, one of hundreds of independently-run savings banks across Germany that function as a loose network, often backed by regions or communities, which pool resources and can even bail each other out in times of need.

But these are difficult times. Norbert Spory, the head of Wetzlar Sparkasse, is hoping that closing 15 of the city’s 49 branches will be enough to face the harsh reality of the situation.

“The branches are the genetic code of our Sparkasse”

Johannes Hartig, Sparkasse Osnabrück

“We’ve come to a point where we have to react to the different customer needs and economic burdens,” Mr. Spory said. “It’s clear that something has to happen.”

Banking experts have long predicted many branches of savings banks would have to be shuttered – now that is coming true.

Savings banks have already closed more than 1,000 branches since 2007, to under 13,000 across the country in 2013. The pace is expected to pick up even further in the next five years (see graphic).

To blame is the ascent of online banking, coupled with record low interest rates across the 19-nation euro zone. Those are chewing through profit margins for loans and undermining the business model of the Sparkasse group, as well as other banking groups in the country like Germany’s cooperative banks.

However, closing branches cuts to the core of Sparkasse’s identity.

More than any other German banking group, savings banks have always pinned their business model reputation on serving average savers close to where they live. Local, dependable and scandal-free – that’s how Sparkasse liked to present itself after the global financial crisis tarnished the reputations of many private banks in Germany and around the world.


Branche closures-01


Record low interest rates are a problem for the entire financial industry. Major players like Deutsche Bank, Munich-based HypoVereinsbank and many cooperative banks are also trimming their branches.

But for Germany’s 416 regional Sparkassen, the problem of low rates is especially dangerous in the long run.

During the financial crisis, customer deposits of €840 billion ($889 billion) served as an anchor of stability. But now, in an era where the European Central Bank is even charging banks to keep money in reserve, those deposits have become a burden. Rising personnel costs and a shrinking population in much of Germany – especially in non-urban regions where savings banks are strongest – are also a problem.

Still, many Sparkasse officials swear that they want to stay close to their customers.

“The branches are the genetic code of our Sparkasse,” said Johannes Hartig, the head of Sparkasse Osnabrück, a regional savings bank in the northern German state of Lower Saxony. Still, he also recently decided to shut 17 of the group’s 58 branches.

Sparkasse Koblenz in western Germany is closing 10 of 48 branches. In Augsburg, a city in the heart of Bavaria, nine of 39 branches will go. Sparkasse Duisburg wants to install more automated teller machines, and by 2022 plans to close half of all this western city’s manned bank branches.

The list could go on.

There’s no time for customers like Mr. Dross to mourn, either, as the Sparkasse closures are often carried out in a matter of months. The branch in Wetzlar-Garbenheim is slated to close its doors by this fall.

Oliver Mihm, head of the Investors Marketing consultancy based in Frankfurt, said this is merely “the start of a process” for these regional groups.

“There will be other cases where a Sparkasse closes 25 or 30 percent of its branches,” he said, adding that he expects German bank will shutter some 19 percent of their branches by 2020.

Other banking sector experts are even grimmer: “Many Sparkassen will close half their branches or merge them with others,” predicted Bernd Nolte, a consultant and professor at Steinbeis University in Berlin.

There are some innovative solutions being experimented with. In order to stay in contact with their customers, Sparkassen in some regions have turned buses into mobile banks, rolling from village to village. Others are sharing facilities with cooperative banks, another network of regional banks in Germany that is facing similar challenges.

Even Mr. Dross said he understands that savings banks have to cut costs. “What bothers us is that it’s going from 100 to zero. The Sparkasse isn’t even leaving an ATM here,” he complained.

The next bank machine is 1.7 kilometers away in the city of Wetzlar. That’s a problem for many of the city’s elderly without a car. Soon they’ll have to still head to the center of Garbenheim, passed the old site of the savings bank, but from there they’ll have to take the bus at a round-trip cost of €4.20.

“Sparkasse is supposed to be the bank for the little guy,” said Mr. Dross.


Elisabeth Atzler covers the banking industry for Sparkasse. To contact her:

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