Demographic change and bank profitability: empirical evidence from German savings banks

Most European economies will experience significant demographic changes in the decades ahead. Due to low birth rates, populations are shrinking and ageing at the same time. This article explores the impact of demographic change on the banking industry. A unique data set, which contains detailed information on almost 2.5 million accounts in 11 German savings banks, allows us estimating the socio-demographic determinants of retail profitability. Using a simulation model, we predict the development of bank profitability resulting from demographic shifts through 2025. Our central finding is that the effects of population ageing will partially offset the impact of shrinking customer bases. While the decline in the size of the population reduces the customer base, ageing increases profitability per se, as older customers typically generate higher profits for their banks.