The head office of German banks Deutsche Bank (L) and Commerzbank in Frankfurt, Germany.
FRANK RUMPENHORST|DPA|Getty Images
Germany’s significant banks require to increase their arrangements for non-performing loans, as business insolvencies and credit threats install, according to Bundesbank Vice-President Claudia Buch.
Europe’s biggest economy has actually been called the “sick man of Europe” by some financial experts, after going into a technical economic downturn previously this year while financial activity deals with even more down pressure from a collapse in building and construction.
Lawmakers in Berlin are on the other hand rushing for options to an establishing spending plan crisis that might threaten the future of the nation’s union federal government.
Like the remainder of the euro zone, the German economy is handling a fast increase in rate of interest, as the European Central Bank took its primary deposit center from a record low of -0.5% in September 2019 to a record-high of 4% in September 2023.
“I will say that, actually, the financial sector dealt quite well with this increase in interest rates. At the same time, the full effects are not yet visible, so they haven’t really worked their way through the balance sheets of the banks, and this is why we caution the banks as usual,” Buch informed CNBC’s Annette Weisbach on Wednesday.
“Resilience is really of utmost importance at the current juncture. The banks are highly profitable at the moment, and I think it’s good if they use this profitability to increase their resilience — sufficient capital, sufficient liquidity but also investments into IT to shield against cyber risks.”
German banks delighted in a strong 3rd quarter, with Deutsche Bank publishing a net earnings of 1.031 billion euros ($ 1.13 billion) and Commerzbank more than tripling its net benefit from the previous year to 684 million euros.
Buch however kept in mind that provisioning for non-performing loans did not increase as considerably as the reserve bank would have liked, provided the sharp increase in rate of interest and the “very uncertain environment” for the economy.
“Provisioning has increased a bit, but if you compare it to historical averages, it is still at a relatively low level and the same actually holds for corporate insolvencies, so corporate insolvencies which actually came down over the past 20 years have increased slightly, but are still way below historic averages,” she stated.
“In all likelihood, given the structural change that we have, given the uncertainty that we have around us, corporate insolvencies are likely to increase, credit risk is likely to increase, and this is why we — on both sides, from the macro-prudential side and the micro-prudential side — really make banks aware of these risks and urge them to increase whatever they can, their resilience.”
