German banks' consolidated earnings should improve slightly in 2024, but profitability will remain a relative weakness due to inefficient cost bases, overcapacity, and intense competition. German banks benefited substantially from higher interest rates, but we expect support from cyclical interest to peak in 2024. We anticipate a slight increase in credit losses from low levels. Commercial real estate is a pocket of risk for some German banks but not a systemic risk. Deutsche Bank and Commerzbank are expected to deliver more consistent and predictable returns, thereby improving their resilience. Digital disruption risk appears to have eased, not least because German banks have strongly invested in their digital skills. The outlooks on most German banks remain stable, which makes rating changes unlikely over the next two years.
