German banks braces for wave of bad loans in ‘greatest real estate crisis since the financial crisis'
German banks braces for wave of bad loans in ‘greatest real estate crisis since the financial crisis,' per CNN.
Deutsche Pfandbriefbank (PBB), a German lender specializing in real estate, has increased its provisions for bad debts in anticipation of what it describes as the most significant decline in commercial property values in 15 years.
The bank raised its provisions for loan losses in the fourth quarter of 2023, bringing the total set aside for the year to up to €215 million ($231.7 million), according to a statement released on Wednesday. This increase is attributed to the "persistent weakness of the real estate markets."
"Despite these expenses, PBB remains profitable thanks to its financial strength — even in the greatest real estate crisis since the financial crisis," the statement added.
Concerns about the health of bank balance sheets have resurfaced in recent weeks, nearly a year after a crisis that saw three US regional lenders collapse and the emergency rescue of Credit Suisse.
On Thursday, PBB announced that it had enough cash and highly liquid assets on its balance sheet — a "liquidity cushion" — to operate for six months without new funding from investors. Further details will be published with its 2023 earnings in March.
US Treasury Secretary Janet Yellen told lawmakers on Tuesday that she had concerns about some banks' exposure to commercial real estate but believed it to be manageable.
Shares of PBB have fallen 17% since Friday, making it the second German bank in two weeks to warn of mounting losses on commercial real estate. The stock has dropped more than 25% so far this year and 40% in the past six months.
Germany's largest lender, Deutsche Bank, reported last week that it had set aside €123 million ($133 million) in the fourth quarter of last year to cover potential defaults on its US commercial real estate loans. This is more than four times the amount set aside during the same period in 2022.
Banks in various global locations, including New York, Tokyo, and Zurich, have also reported increasing losses on loans to the troubled commercial property sector in recent days.
Last week, New York Community Bancorp reassured investors about its financial stability after its stock lost about 60% of its value over the past eight days. The bank's credit grade was downgraded to junk by ratings agency Moody's following a surprise $252 million loss