BaFin expects "significantly increasing" need for value adjustments

Germany’s financial supervisory authority BaFin expressed concern about the banks in the Corona crisis, saying that loan defaults could hit the financial institutions hard. However, a systemic crisis is not imminent, it said in a recent telephone briefing with journalists.

In the first quarter, risk provisions had not yet reached the level that would ensue in the coming months. "In the coming quarters, however, we will see a significant increase in the need for loan loss provisions," said Raimund Röseler, Executive Director Banking Supervision at BaFin.

Torsten Hollstein, managing director of Berlin-based CR Investment Management, said at the briefing that his company is already being asked to take on workout clients for real estate financing and the properties financed with it. "At the moment, the market is already feeling the creaking in the woodwork. In two to three months, the number of non-performing loans will rise significantly,” he said. 

Most recently, the German Federal Association for Loan Purchase and Servicing (Bundesvereinigung Kreditankauf und Servicing) warned of a wave of bad loans. The volume could triple to €100 billion in the coming quarters, it believes.

Overall, however, BaFin boss Felix Hufeld said he didn’t see the threat of a systemic crisis, at least not from where we are now. "I can’t vouch for every single bank, but the sector has what it takes to survive the crisis, albeit with a few wounds.”

Hufeld said supervisory normality would return after the Corona crisis, after the supervisory authority had adopted numerous regulatory relaxations over the past few months. "The entire apparatus of reporting and capital adequacy and the ongoing communication between the supervisory authority and the financial institutions will be scaled back to normal", Hufeld said. It is not yet possible to predict when this will happen and how quickly. "This will take place in an appropriate and gradual manner, with the necessary sense of proportion." Corona won’t be leading to any permanent deregulation, he stressed.