Higher credit risk provisions caused TeamBank's profit to plummet last year. Despite being able to expand the loan portfolio and increase net interest income, the pre-tax result dropped by 40% to 81 million euros.

Nevertheless, outgoing CEO Frank Mühlbauer, who will retire at the end of March, is satisfied with the result, which demonstrates operational strength in a year marked by economic and geopolitical crises. The consumer loan portfolio was expanded by 1.5% to reach 9.45 billion euros, fuelled by new business totalling 3.1 billion euros. Meanwhile, the market in Germany contracted by 0.4%, while in Austria, where TeamBank is also active, it grew by 0.7%. The consumer loan market in Germany is valued at 186 billion euros, while in Austria, it exceeds 13 billion euros.

The DZ Bank subsidiary also managed to attract more customers. It now counts 1.04 million, reflecting a 3% increase.

These measures instil confidence in Mühlbauer to gain more ground in the market. "We are convinced that together with the Volks- and Raiffeisenbanks, we can significantly increase market share in consumer financing", says the CEO of the DZ Bank subsidiary talking with Börsen-Zeitung. Currently, cooperative institutions hold a total market share of 14.3% in the consumer loan business. TeamBank holds 4.2% of it.

Mühlbauer attributes the increase in credit risk provisions, which rose by a third to 133 million euros, to weak economic conditions and high inflation. These factors particularly affected customers already facing financial strain, leading to higher risks and, in some cases, defaults. In 2022, risk provisions were already increased by 43 million euros to 100 million euros compared to the previous year.

Mühlbauer, who describes his bank as a "cyclical leading indicator", anticipates that this trend will continue. "The rise in risk is not yet over. It is expected that there will be relief in risk provisions from 2025 onwards."

He does not foresee significant impulses from domestic consumption this year, given an anticipated economic growth near zero. "Due to significant uncertainty among the public, larger consumer spending is being postponed."

This caution is reflected in the savings rate, which Mühlbauer describes as surprisingly stable. "Even if people have more money in their pockets thanks to real salary increases, they are more inclined to save it in these uncertain times."

He anticipates positive momentum – alongside ongoing cost discipline – from efficiency gains driven by digitalization and from acquiring more customers. Customers are increasingly self-directed, with 56% of credit transactions now initiated by the customers themselves. About 1 billion euros of the over 3 billion euros in new business last year came from financial reserves and financial flexibility. The bank assesses the customer's creditworthiness and approves a credit line that the customer can independently utilize at any time.

"We are moving further away from the traditional consumer loan, which is demand-driven, towards continuous liquidity support in the form of a credit line", observes Mühlbauer.

TeamBank also focuses on further efficiency in the management of existing loans. On average, each customer generates one so-called portfolio management process per year, such as adjusting repayment plans or updating addresses. With one million customers, this amounts to one million such processes annually, which do not add value and incur costs. However, an increasing number of customers are now handling these tasks themselves through digital tools, relieving the bank, reducing costs, and streamlining processes. Currently, customers handle three-quarters of these tasks independently. In 2022, the self-service rate was at 66%, up from 57% in 2021.

As a result, TeamBank and its partner banks incurred lower costs because customers independently handle tasks, whether it's initiating a loan drawdown from the financial reserve or updating their address. Additionally, they are pleased to take matters into their own hands, as evidenced by the Net Promoter Score, which serves as a measure of customer satisfaction. Last year, a score of 51 was recorded, which Mühlbauer described as "exceptionally good."

In Germany, TeamBank now collaborates with approximately 93% of all German cooperative banks. Additionally, 24 partner banks were added last year. There is also potential for growth in Austria, where so far 48% of Raiffeisenbanks and all Volksbanks have partnered with TeamBank.

Nevertheless, partners had to settle for declining commissions last year. The fact that German institutions received 17% less in commissions, totalling 185 million euros, is attributed by Mühlbauer to reduced revenue from brokering residual credit insurance, following a 13% decline the previous year.

The CEO also mentions that the commission cap, enforced since July 2022 through the implementation of the Crowdfunding Accompanying Act, which restricts commissions to a maximum of 2.5% of the insured loan amount, has consequently "resulted in further adverse effects."

Provision payments to partner banks in Austria for brokering residual credit insurance also decreased by 11% to 49 million euros. However, there is no cap in place there.

In addition to the increased provision for risk, TeamBank's results were also burdened by the tripling of commission expenses paid to partner institutions, totalling 39 million euros. This increase stems from the fact that bonuses are accounted for under the category of commission surplus, while portfolio commissions are deducted from the interest surplus. According to Mühlbauer, as business expands, not only do interest surpluses grow, but so do the commissions to be paid.

The CEO aims to maintain the goal of reducing the cost-income ratio to below 50% by 2026, despite TeamBank deviating from it in the past year. While the ratio was 55.1% in 2022 and 58.2% in 2021, it now stands at 57%. But in the multi-year planning, the targeted value remains below 50%, although Mühlbauer is hesitant to commit to the exact year.

The expenses, which remained constant at 285 million euros recently, are expected to decrease. For example through natural attrition, but not at the expense of future investments in digitization and AI As per Mühlbauer, a significant double-digit percentage of the material costs goes into IT. "We invest approximately between 20 and 25 million euros per year in genuine digital innovations to replace existing systems," he states.

Mühlbauer notes that in some parts of the company, operations now heavily rely on artificial intelligence (AI). Nonetheless, he believes that the topic is sometimes overhyped. In the banking sector, the focus is on using AI to work more effectively and efficiently, as well as to relieve employees. "We must not view AI as a program to reduce jobs, but rather position it as an element that enhances quality", the CEO emphasizes.

When the 60-year-old retires at the end of March, he does so knowing that he leaves behind a well-organized institution. His deputy, Chief Customer Officer Christian Polenz, will take over his position, and Marion Thielemann has already joined the board as Chief Financial and Risk Officer in October. Chief Technology Officer Reinhold Rehbichler remains the third member. "I believe I've contributed to driving forward the digitalization of TeamBank and orchestrating the succession plan", Mühlbauer remarks.

Reflecting on the start of his five years at TeamBank, Mühlbauer recalls it as akin to a culture shock. "In the 25 years prior to joining TeamBank, I had my own office, and I wasn't familiar with the Clean Desk Policy. Accustomed to formal address, I entered an environment in 2019 where everyone, from apprentices to executives, addressed each other informally. We as the board members, along with our assistants, sit in an open-plan office and find a spot every day. Thus, I personally experienced what it's like to undergo changes. It was an adjustment process that I wouldn't want to miss."

After decades of working 60, 70, or 80-hour weeks, he plans to first take a few months of rest and reflection in retirement, before embarking on new endeavours. While he's not yet certain what those will be, given his fondness for people, he can envision himself engaging in volunteer work or advisory roles. On the one hand, he looks forward to his newfound freedom: "I want to transition from being dictated by external forces back to a sense of self-determination", says Mühlbauer.

On the other hand, he looks back with some nostalgia on his time as a leader. For over 23 years, he served as a board member of cooperative institutions, with more than half of that time spent as chairman. "When you've always been the last call, the one making decisions, then it's darn hard not to have a say or step back into an advisory role."