Deutsche Bank

Annual Report 2017

The Banking Industry

Lending to the private sector in the Eurozone saw greater divergence in 2017. On the one hand, the outstanding corporate lending volumes continued to stagnate, as they have since summer of 2014, with increased purchases of distressed debt portfolios and further robust issuance of corporate bonds also playing a role. On the other hand, lending to households rose for a third consecutive year to reach 3.4 % year on year, its highest level since 2011. The outstanding volume set a new record of € 5.6 trillion. In particular, consumer lending gained pace significantly as the year progressed. The high growth in deposits, up 4.1 % year on year, continued more or less unabated despite zero interest rates. The loan-to-deposit ratio in the private sector business declined further over the course of the year, dropping from 107 % to 105 %. Corporate deposits expanded by 6.6 %, twice the rate of household deposits of 3.3 % in 2017.

Contrasting with developments in the Eurozone as a whole, corporate lending activity in Germany saw another strong upswing in the past year. After stagnating as recently as two years ago, the growth rate doubled to 4.7 % year on year in 2017. There was simultaneously a considerable decline in corporate bond issuance. Lending to households again expanded at a quicker pace, accelerating to 3.4 %, with the mortgage sector remaining the primary growth driver (+4.3 %). On the funding side, the banks once again saw a significant rise in deposits (+4.4 %) despite further cuts in interest rates, which were negative for corporates and effectively zero for households – both record lows. Growth in corporate deposits outpaced that of retail deposits, as has been the case for many years. The ratio of corporate deposits to overall private sector deposits has increased from 14.5 % to over 20 % in the last 15 years.

In the U.S., lending activity stabilized at a low level following the dramatic slowdown at the end of 2016/ beginning of 2017. The outstanding corporate lending volume rose by 3.6 % compared to 8.4 % in 2016, while lending to private households saw growth of 3.1 %, in 2016 4.7 %. For corporate lending, the decisive factor was commercial real estate lending with 5.8 % year on year, while traditional corporate loans in the narrower sense saw growth of just 1.5 %. Where lending to private households is concerned, growth in consumer loans of 5.1 % outpaced that of mortgage lending of 3.8 %, while there were declines in home equity loans of 6.8 %. On the deposit side, the rate of expansion slowed moderately to 4.2 % in 2017, almost exactly level with the overall growth in lending activity. As a result, there was no net change in the U.S. banks' sizable excess of liabilities.

In Japan, the rate of growth in the deposit business slowed considerably in 2017 to 3.6 % year on year, although the figure remained slightly ahead of growth in the lending business which was up 2.5 % as against 2016.

In China, lending to households began to slow somewhat recently following extraordinary growth in the past year-and-a-half. Growth for the full year amounted to 21 % compared to 23 % in 2016. By contrast, the rate of expansion in corporate lending rose from 8 % to 12 % year on year. Since the growth in deposits slowed considerably to less than 8 % and could no longer keep pace with the increase in lending activity, the loan-to-deposit ratio continued to edge toward the 100 % mark (climbing from 86 % to 92.5 % over the course of the year). Overall, at almost 150 % of GDP, bank lending to the private sector in China has reached an extraordinarily high level. By means of comparison, the figure for Germany is roughly half this.