German banks vulnerable to the housing bubble; buffers need to be built: Bundesbank


Frankfurt — German banks are increasingly vulnerable to overvalued real estate markets and financial authorities should force lenders to build a capital buffer, Deutsche Bundesbank regularly stabilizes on Thursday Said in the sex report.

Germany reduced banks’ so-called countercyclical buffers to zero at the start of the pandemic, but with strong economic growth and rapid bank lending, it holds more capital in preparation for rainy days. You should be forced to do. ..

“The countercyclical capital buffer should be rebuilt early on,” Deutsche Bundesbank Deputy Governor Claudia Buch said in a statement.

The current zero buffer was set at 0.25% of the bank’s total risk exposure before the pandemic, but current credit levels suggest that higher levels may be needed. increase.

According to the Deutsche Bundesbank, the buffer does not explicitly consider the booming residential real estate market, which requires careful oversight and potential action by regulators.

Real estate prices continue to rise, indicators suggest that further increases are still ahead, and real estate is overvalued as price and rent growth outpace income.

“Price exaggerations in the residential real estate market are on the rise,” the bank said. “Deutsche Bundesbank estimates that it will be between 10% and 30% in Germany in 2020.”

This means that banks may overestimate the value of loan collateral and may be exposed to significant losses in the event of price adjustments.

The Deutsche Bundesbank also added that banks are vulnerable to rising interest rates, especially for mortgages, as the majority of long-term loans are fixed rates.

Reuters

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