Saturday, February 24, 2024

German banks preparing for wave of loan defaults in the face of major real estate crisis

German banks preparing for wave of loan defaults in the face of major real estate crisis



German real estate lender Deutsche Pfandbriefbank is preparing for what it says will be the steepest drop in commercial property values seen in the country in 15 years.

During the fourth quarter of 2023, the bank raised its provisions for losses on loans, setting aside more than $230 million for the year to prepare for bad debts in light of the “persistent weakness of the real estate markets.”

The bank noted: “Despite these expenses, PBB remains profitable thanks to its financial strength — even in the greatest real estate crisis since the financial crisis.”

Their statement was referring to the 2008 financial crisis, when banks collapsed in the wake of sizeable losses on mortgages and securities after the U.S. housing market bubble burst.

PBB said that it currently has sufficient cash and liquid assets to continue for the next six months without any additional funding from investors.


It is the second bank in Germany to warn about losses related to commercial real estate in recent weeks. Its stock, which has dropped more than 25% this year, fell 17% since its announcement on Friday.

Last week, the biggest German bank, Deutsche Bank, announced that it allocated $133 million during the fourth quarter of 2023 to help with potential defaults on commercial real estate loans in the U.S., which was more than four times the amount they set aside for this purpose during the last quarter of 2022.

German banks are being affected by problems in the U.S. as well as at home. The German banking association VDP reports that office property prices there dropped by 5.2% during the last quarter of 2023 and more than 13% year-on-year.

Meanwhile, the Japanese financial institution Aozora Bank said that its projected annual loss of $190 million can be partly attributed to bad loans related to American offices, while the private Swiss bank Julius Baer reported a drop in profits of 55% during 2023 due to a $680 million loss on loans to a European conglomerate.


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