European banks must expect significantly higher loan defaults in the coming year due to the economic consequences of the corona epidemic. “The stock of loans at risk of default will double,” said Christoph Schalast, Professor of Business Law at the Frankfurt School of Finance on Thursday. EU banks are currently sitting on around 400 billion euros in bad loans. In historical comparison, this is a very low amount, said Schalast. A doubling can therefore be mastered, the banks would have to put money aside as a loss buffer. The side effect is problematic. The bank would then grant less credit and there would be a credit crunch from which companies could suffer severely.
Many companies are dependent on credit due to the slump in sales due to the partial economic lockdown. “Unlike in 2008, there is no threat of a banking crisis,” said Martin Faust, Professor of Banking Management at the Frankfurt School. “In this crisis, the real economy is the problem, so all government aid for companies is very helpful.”
In a recession, many companies can no longer pay back their loans. Because banks have increased capital reserves over the past decade, reserves are there to cope with failures. But that does not rule out that individual banks could go bust. In the worst case, the ECB expects bad loans in the European financial sector to rise to 1.4 trillion euros – that would be more than tripling the current amount.
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