by Lothar Gries
Status: 01.12.2020, 6:35 a.m.
Economists are sounding the alarm: Regardless of the state aid, an unprecedented wave of bankruptcies is rolling towards Germany – with corresponding consequences for the banks. Can the institutions cope with the impending default of many loans?
The numbers are alarming: according to calculations by the employer-related Institute for Economics IW and the Federal Association of German Volksbanks and Raiffeisenbanks (BVR), there will be more and more so-called “zombie companies” by the end of this year. So companies that are in the red and actually have to file for bankruptcy.
Although corporate bankruptcies are a natural process, if too many companies stop their payments at the same time, they become a danger for banks and savings banks, the heart of our economic system. If the banks have to write off a lot of the borrowed money, they themselves get into trouble – and can no longer grant any further loans or have to be saved from collapse.
Hundreds of banks affected
A study by the Leibniz Institute for Economic Research Halle (IWH) published in the summer predicted that the current corona crisis could mean the end for dozens of banks – at best. Accordingly, in an optimistic scenario, six percent of banks in Germany would be at risk from loan defaults. In a pessimistic scenario this would apply to 28 percent of the institutes, which corresponds to hundreds of financial institutions.
“Understandably, the state has recently taken care of the real economy, but should not overlook the possible dangers lurking in the financial sector,” warned IWH President Reint Gropp. Because a banking crisis could trigger a second recession.
In fact, savings banks and cooperative banks in particular should expect loan defaults, as they mostly lend their money to companies that are particularly hard hit by the lockdown, such as the hospitality industry, retailers and small craftsmen.
40 percent more bankruptcies next year?
The Federal Association for Credit Purchasing and Servicing (BKS) joins the same horn. “Even if the state continues to intervene in a buffering manner, we are assuming an increase in insolvencies of 40 percent to 6,000 to 7,000 per quarter from 2021,” warns BKS President Jürgen Sonder. This puts the capitalization of the banks in an “extraordinary stressful situation”.
Nobody knows yet how high the volume of bad loans will be, because the extension of the obligation to file for bankruptcies has postponed the feared bankruptcy wave into 2021 and 2022. Because companies that are insolvent have only had to file for bankruptcy again since October. That had been suspended since March. A well-founded assessment of the situation in German banks will therefore only be possible at the beginning of next year.
Banks weigh it down
What the Kassandren don’t mention is that savings banks cannot de facto go bankrupt. They are owned by the municipalities and therefore belong to the state. In addition, the savings banks are liable for each other and prevent bankruptcies through mergers. The Volks- und Raiffeisenbanken also have such a liability association.
The all-clear has also come from the private banks. “I think a crisis in the banking sector is unlikely in the coming year to a year and a half,” said Deutsche Bank CEO Christian Sewing in September. Only if the pandemic dragged on for years would the financial institutions also get into trouble.
“Credit defaults will not catch the institutions cold”
Hans-Walter Peters, President of the Association of German Banks, also sees no reason for excessive worries. “The banking system in Germany is stable today – and it will also be stable tomorrow,” he says. It is clear that there will be an increase in non-performing loans in the next year. “We are prepared for this. Credit defaults will not catch the institutions off guard.” Thanks to their good provisions, the banks have been able to fall back on sufficient equity and liquidity in recent years.
Still, Peters demands further relief. He advocates an “urgently needed readjustment in the bank levy”. This is a levy to be paid by all banks and savings banks to a restructuring fund since 2007. This year, the payment to be made by the German financial institutions should amount to a good 2.2 billion euros – too much, believes the banking association.
Take an honest look at the loan books
The fact that the banks have so far been able to cope with the challenges of the Corona crisis without major wounds is also due to the fact that, according to the Bundesbank, the particularly hard-hit sectors such as the catering and hotel industry only account for a small proportion of the loans granted to domestic companies: around two percent of the Total loan or 28 billion euros.
For comparison: the housing and real estate sector has a total of 476 billion euros in loan receivables and thus represents 23 percent of the receivables from the large, systemically important banks and even a third of the domestic loans from the other banks.
Nevertheless, the top banking supervisor in the euro zone, Andrea Enria of the ECB, admonishes banks not to ignore the risks. In an interview with the “Handelsblatt” he recently said: “The banks should take an honest look at their loan books and check which of their customers will really survive the crisis. The institutes must start now to avoid the wave of bad loans in the first place gets too big. “
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