The International Monetary Fund said Germany's banks need to expedite their restructuring plans so they can return to profitability and reduce the risks they face.
The IMF also called on the German government to consider tax reforms — mainly lowering taxes on low-income households — to foster wage growth which will in turn boost consumption and help rebalance the country's economy.
Additionally, the IMF called on Germany's life insurance sector to expedite its shift away from traditional guaranteed-return products. Both the banking and life insurance sectors have been under additional pressure due to historically low interest rates.
The IMF said the country's short-term growth outlook is still good but its long-term expansion faces major risks stemming from worsening trade tensions, a turbulent Brexit, a further China slowdown and unforeseen troubles in the eurozone.
In April, two of Germany's biggest privately held banks, Deutsche Bank AG and Commerzbank AG, failed to reach an agreement during merger talks despite the government pushing for a tie-up. Commerzbank is expected to receive new merger offers while Deutsche Bank will likely face renewed pressure to complete its restructuring plans.