The Challenge was Successful People's Banks and Raiffeisen Banks in the New Federal Lander

    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
                         June 1994

               The Challenge Was Successful
           People's Banks and Raiffeisen Banks
                in the New Federal Lander

                    by Claudia Paul*

The East German People's Banks and Raiffeisen Banks have
established themselves successfully following the phase,
difficult for all enterprises of the former GDR, of conversion
from a planned economy to an economic system oriented on a
market economy.
The 212 co-operative banks operating in the new Lender (at the
end of 1993) offer their customers the full range of financial
services according to the Western pattern. The original number
of approximately 370 institutions (100 co-operative savings
banks for  craftsmen and small businesses, 270 farmers'
trading co-operatives) has diminished considerably.
The reason:  many mergers, especially on the part of
Raiffeisen. Most farmers' trading co-operatives, which used to
operate both banking and commodity business, eliminated the
commodity business and founded independent Raiffeisen banks by
merging several banks. Also, most subsidiaries of the former
Co-operative Bank Berlin were taken over by Raiffeisen banks.

The People's Banks in the new Lender employed, at the end of
1993, some 12,000, thus increasing the number of employees by
about 10%. The average number of staff members, 56, is in line
with West German conditions.  Also the balance-sheet total per
staff member is developing towards the Western level.

At the end of 1993, the balance-sheet total of the
co-operative banking group in the new Lender was about DM41.6
billion. This represents an increase of 60% over 1990. This
means that the average balance-sheet total per institution
increased considerably, from DM72 million in 1990 to DM196
million in 1993, not least due to mergers. It is true that, in
absolute terms, the West German level has not been reached
yet, but the ration of sizes is getting closer to the
all-German average.

At the end of 1993, credit business of the People's Banks and
Raiffeisen Banks in the new Lender reached a volume of some
DM14 billion, an increase of 80% since the currency
conversion. This major expansion was accompanied by structural

Whilst in the early stages short-and medium-term loans
prevailed, this ratio kept changing up to the present
structure with emphasis on long-term credit business. Its
credit business of some DM billion accounts for two thirds of
the overall credit business. Short and medium-term loans
amount to DM 4 billion. Bill discount credits are
approximately DM40 million.

The East German co-operative banks are deeply engaged in
public promotional credits. By the end of 1993, they handled
approximately 100,000 applications covering a credit volume of
some DM7.4 billion. Emphasis is on credits for establishing an
existence; this business has a market share of 30% 
of applications.

In addition to the development work within their own ranks,
the co-operative banks thus contributed to the overall
economic development in the new Lender.

At the end of 1993, the deposit business of the East German
People's Banks and Raiffeisen was approximately DM32.7
billion, meaning an increase of 40% since the monetary union.

Whilst in credit business the structure has more or less
adjusted itself to West German conditions, the East German
liability side differs from the West German patterns due to a
continued heavy requirement of liquid funds on the part of the
savers. Sight deposits - approximately DM10.8 billion -
account for roughly one third of all customer deposits. Their
volume is only exceeded by time deposits of approximately
DM11.5 billion, which, in the light of their relative
significance, are in line  with all-German importance.
This means that this form of investment unknown to the savers
of the former GDR has taken a positive development. This
worked at the expense of saving deposits which kept increasing
and are now at a  volume of some DM7.8 billion. Some DM2.6
billion were deposited on savings bonds.

These figures are impressive evidence of the success of the
generous help given by the West to the East German People's
Banks and Raiffeisen Banks during the conversion phase. Had it
not been for the energetic and financial support by the West
German co-operative banks, in conjunction with DG Bank an IRU
member, central banks and link-up system institutions, in an
unparalleled solidarity drive, it would not have been possible
to cope with this difficult task.

The same as all other enterprises in the former GDR, the
co-operative banks for craftsmen and small businesses (now
called People's Banks) and the farmers' trading co-operatives
(now called Raiffeisen Banks) were subjected to the strict
frame of a planned economy, and their entrepreneurial
operations were very restricted.

With the opening of the Wall and the introduction of the
economic, monetary and social union, the credit co-operatives
had to adjust their business activities to Western standards.
They had to learn to hold their own free competition vis-a-vis
competitors on the market.

True to the spirit of the co-operatives' conception of
themselves - help to self-help - right from the start all
measures were laid out to enable the East German institutions
to stand their ground 
on the market all by themselves as soon as possible.

What began in regions neighbouring the border in individual
activities developed fast into banking partnerships covering a
broad surface. Each co-operative bank in the East had a
People's Bank or Raiffeisen bank from the West on its side,
giving valuable practical support in the field, from matters
of daily banking business into the area of personnel and

Considerable funds were required to realize the extensive
supporting services. This is why two solidarity funds were
founded for personnel and investment measures.

The People's Banks and Raiffeisen Banks from the old Lender
made a total of some DM45 million available, which were
primarily used for training courses, exchange of staff, and
the delegation of West German staff to East German credit
co-operatives. The training courses, most of which were held
in a centralized way via the West German regional unions,
dealt mainly with general matters of banking operation,
product information in active and passive business and
conversion to West German EDP systems. This benefited all
staff members of the East German People's Banks and Raiffeisen
Banks, from the managers to the trainees.

These training courses covered a wide range of information on
the nature and substance of the banking business in a market
economy, and facilitated the familiarization of the students
with their new tasks.

The solidarity fund "Investive Measures" shouldered by the
co-operative link-up system institutions, including DG Bank
and central banks, with a total volume of approximately DM40
million, subsidises credits for building measures required in
order to operate the banking business according to West German

These activities, which enabled the conversion from banking
operations rather oriented on winding up to an active, market
oriented  operation in a relatively short time, helped to
develop structures within the co-operative group of banks
comparable to the West.

With the exception of Saxony, where an independent audit
organisation was founded, the people's Banks and Raiffeisen
Banks in the new Lender joined the neighbouring West German
regional unions. Moreover, all co-operative banks of the
former GDR joined the security institution of the Federation
of German People's and Raiffeisen Banks, an IRU member. DG
Bank exercises the central banking function for all credit
co-operatives in the new Lender.

Additionally, co-operation with the link-up system
institutions was successfully established, and enabled the 
East German co-operative banks to offer, at short term, a
broad range of services in the entire financial services 

* Ms Paul is Consultant at the Federation of German People's
and Raiffeisen Banks. This article was reproduced from the IRU
Courier Number 1, April 1994.