Scope: Concerned for German banks the ‘deep’ in commercial real estate prices

Concerned for the Germans last year’s “butter” by 10.2% in commercial prices, Scope Ratings, although it adds that it does not directly predict any “systemic” risk. The analysis acknowledges that German banks have announced much better results in recent weeks , but the decline in the real estate market and the risks of transmission, particularly from different US market levels, are persistent concerns. Scope points out that the German real estate exposure amounted to EUR 333 billion at the end of June 2023. However, while the deterioration in real estate markets began to be reflected in bank balance sheets and ‘red’ loan indicators. In 2023, provisions on loan losses remained manageable for most banks. However, Germany’s special housing financial institutions and Landesbanken have large portfolios of real estate and part of their report is outside Germany, particularly in the US office sector. These banks were forced to face significant increases in NPL indicators and some have committed significant provisions for loan losses. On the positive side, the German house report states that the country’s real estate market is fundamentally stable. Losses related to the collapse of the real estate group Signa proved manageable for German banks, and in general, it is expected that provisions for loan losses for commercial real estate exposures will remain moderate until 2024. Banks are generally more cautious in lending to problematic real estate segments, so it is predicted that the percentage of real estate offices in portfolios will decrease over time. Scope notes that the NPL indicators for Landesbank Hessen-Thüringen (Helaba), Deutsche Pfandbriefbank (pbb), DekaBank (DEKA) and Bayerische Landesbank (BayernLB) were increased by 1.5% in the first half of 2023 but still considers the risks to be fairly limited at this level. The most affected real estate banks constitute a limited share of the German banking sector , while the analysis of Scope does not include the exposures of Deutsche Bank or Commerzbank due to the high percentage of housing loans for housing in their real estate portfolios and their very stable nature.