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German banks expect losses and more credit defaults

According to a study, Germany’s financial institutions are still preparing for the significant effects of the pandemic on their business.

According to a study, Germany’s financial institutions are still preparing for the significant effects of the pandemic on their business. As a study by the auditing company EY published on Monday shows, 42 percent of the credit institutions expect earnings losses due to Corona, four percent even a strong one.

The true extent of the consequences of the pandemic will therefore only become apparent in 2022: 49 percent expect companies and private households to become increasingly insolvent in the first half of the year and 29 percent in the second half of the year. 74 percent of the institutes assume that the credit quality will deteriorate.

EY interviewed 100 credit managers from banks and savings banks.

“From the point of view of the German credit institutions, the long end of the economic effects of the corona pandemic is still to come,” explained Michael Berndt, partner in financial services consulting at EY. According to the survey, numerous institutes expect a noticeable increase in the proportion of non-performing loans in their own portfolio: every fifth bank manager expects the corresponding rate to increase by more than 20 percent.

Despite the assessment that the creditworthiness of borrowers is suffering and the probability of default increases, according to the study, the banks want to expand their lending: At 61 percent, new lending is expected to increase in the next twelve months, and only 13 percent to decrease.

The individual willingness, however, is in clear contradiction to the assessment for the industry as a whole: 45 percent of bank managers expect the industry to cut back on new lending. According to the survey, customers must expect higher demands on their creditworthiness and collateral.

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