The role of banks in the regional economic development of Uzbekistan: lessons from the German experience. Nodira Abdunazarova
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banking system is still characterized by a high concentration of assets in one region. The banking system performs well, but an unequal access to bank resources may decrease financial opportunities for enterprises in less developed regions. It is necessary to work out a mechanism which would help to make banks essential players in the rural and peripheral areas. The next section, therefore, moves on to discuss the German private and public regional banks.
2. The German regionally-oriented three-pillar banking system
This section focuses on regional aspects of the German three-pillar banking system, namely large banks (Großbanken), savings banks (Sparkassen), and cooperative banks (Genossenschaftsbanken) (Table A1).
It is important to note that all banks are under the supervision of a governmental body – the Federal Financial Services Authority (BaFin) in cooperation with the Bundesbank (the Central Bank). It is mentioned in the BaFin's report that this organization divides the credit institutions it supervises into four groups: commercial banks, institutions belonging to the savings bank sector (including Landesbanks), institutions belonging to the cooperative sector, and other institutions.
Each bank in Germany is subject to the German Banking Act (Kreditwesengesetz - KWG). The savings banks are subject to the public law. Private banks, including cooperative banks, perform in accordance to the private law. Additionally, the cooperative banks perform in accordance with the Cooperative Society Act (Genossenschaftsgesetz - GenG). The savings banks are subject to some regulations adopted by Germany's federal states.
The savings banks and cooperative banks are at the heart of two large financial groups.
The Savings Banks Finance Group (Sparkassen-Finanzgruppe) is one of the largest banking groups in the world. It is composed of savings banks, Landesbanks, the regional building societies (Landesbausparkassen), public primary insurance groups, as well as DekaBank, and other financial service providers. The Savings Banks Finance Group has its umbrella organization the German Savings Banks Association (Deutscher Sparkassen- und Giroverband - DSGV). The DSGV is funded by the regional savings banks associations together with the Landesbanks.
The cooperative banks (Volksbanken Raiffeisenbanken), Sparda-Banks, regional PSD-Banks, central banks for cooperative banks (DZ-Bank-AG and WGZ-Bank-AG), and other cooperative financial institutions are members of the Cooperative Financial Services Network (Genossenschaftliche FinanzGruppe Volksbanken Raiffeisenbanken). The Federal Association of German Cooperative Banks (Bundesverband der Deutschen Volksbanken und Raiffeisenbanken - BVR) is the central organization of the Cooperative Financial Services Network and represents its interests at the national and international level. Respectively, the BVR together with regional associations are members of the German Cooperative and Raiffeisen Confederation (Deutscher Genossenschafts- und Raiffeisenverband – DGRV).
Before considering the performance of banks in the regions of Germany, let us first analyze the main economic indicators of the federal states.
Graph 3
Regional share of total GDP in 2012
Source: The statistical offices of the Federation and the Länder (http://www.statistik-portal.de)
Germany is made up of sixteen federal states and from Graph 3 one can see that Nordrhein-Westfalen, Bayern, and Baden-Württemberg are federal states with the highest shares in the country's GDP. From an economic point of view, it can be claimed that these regions are relatively strong and successful.
Also one can see from Graph 4 that in 2012, Bayern, Baden-Württemberg, and Hessen were donor federal states with local budget surpluses. At the same time, Berlin, Brandenburg, and Thüringen had the highest budget deficits among the other German federal states.
Graph 4
Interstate fiscal equalization transfer scheme 2012 (billion EUR)
Source: LfA Fördernbank Bayern (2013), the Federal Ministry of Finance
Since this paper focuses on the regional aspects of the banking system development, it is important to consider the bank accessibility for customers in rural areas. According to Höwer (2013), in Germany the mean distance of the closest saving banks in rural areas is 2.2 km, of cooperative banks 2.3 km, and of private banks 12 km.
In 2012, the share of savings banks group with respect to total assets made up 28% (savings banks - 13%, Landesbanks and Deka Bank - 15%), the share of cooperative banks – 12%, of private commercial banks (including 4 large banks) - 39%, and 20% accounted for other banks (Bülbül, Schmidt, & Schüwer, 2013).
From Graph 5 it can be seen that the distribution of credit differs among federal states. Significant shares of the big banks' credit were concentrated in Hessen (25.9% of the total amount), Bayern (20.6%), and Nordrhein-Westfalen (19.3%).
Graph 5
Credit to non-bank sector provided by three groups of banks in 2012 (%)
Source: Deutsche Bundesbank, Bankstatistische Regionalergebnisse
The savings banks offered more than 27% of their total credit in Nordrhein-Westfalen, 15.6% in Bayern, and 14.8% in Baden-Württemberg. The cooperative banks concentrated their credit in Bayern (21.1%), in Baden-Württemberg (20.7%), and Nordrhein-Westfalen (20.6%). The economic sectors in Bayern and Baden-Württemberg are considered by bank groups as the most attractive for lending.
It is worth noting that the German savings banks and cooperative banks, compared to the branches of big banks, have relatively higher shares of credit in most of the new federal states (Thüringen, Brandenburg, Sachsen, Sachsen-Anhalt, and Mecklenburg-Vorpommern).
The level of commercial banks' activities in the federal states can also be explained not only by economic factors, but also by historical reasons. After the country's reunification in 1990, two of West Germany's big private banks took over the "Staatsbank" which had a wide branch network across the former German Democratic Republic (Lehmann, Neuberger, & Räthke, 2004). In addition, the big private banks have more opportunities too due to a diversified credit portfolio and sufficient resources to actively accrue a higher share of the credit market in East Germany. However, one can see that the significant share of bank credit of all the groups of banks is concentrated in old federal states, such as Bayern, Baden-Württemberg and Hessen, Nordrhein-Westfalen, and Rheinland-Pfalz.
From Graph 6 one can see the existence of the cost-to-income ratio gap between the big banks and small banks in Germany.
Graph 6
Cost-to-income ratio in different bank groups (%)
Source: Deutsche Bundesbank, die Ertragslage der deutschen Kreditinstitute
Due to a lack of data, we cannot calculate this indicator for Uzbekistan's banks, but the similar pattern from Graph 6 can be seen in less developed countries as well. According to a number of studies on cost-efficiency in developing and developed countries, there is a non-linear U-shaped relationship between the bank size and its efficiency (Karray & Chichti, 2013; Aleskerov, Belousova, Ovcharov, & Solodkov, 2009; Golovan, Kostyurina, Pastukhova, Karminsky, & Peresetsky, 2007; Srivastava, 1999; Berger, Hanweck, & Humphrey, 1987; Mester, 1992; Clark, 1996). It should be suggested that there is an optimal efficiency point up to which cost efficiency increases alongside bank size. However, after passing this