German banks are heavily involved in the financing of commercial real estate. However, due to the economic crisis in the wake of Corona, many companies could get into payment difficulties. As a result, the pressure on banks is growing.
The rating agency Moody's warns of a "considerable risk" for some German banks because of their role as financiers of commercial real estate. Depending on the duration of the Corona crisis, "suspension of payments, failures and decreasing security levels" can be expected; this should in turn lead to more non-performing loans, higher risk provisions and lower income for the banks, as Moody's said.
The hotel, non-food retail and office space sectors are severely affected by the corona crisis. The demand for office space "could be subdued in the future" because the companies increasingly adjusted to teleworking, explained Moody's. In addition, commercial properties in the travel and tourism industry are severely affected by travel restrictions and distance regulations that were issued due to the corona virus. Moody's anticipates an increase in store closures and bankruptcies in the current year, which jeopardizes loan repayments in these areas.
According to the information, German banks are among those in Europe with the most extensive risk exposures as commercial real estate financiers. According to Moody's, the total volume of loans in this sector in the European Union was estimated at around 1.6 trillion euros in 2019 – 27 percent came from German institutions. In particular, the German institutes specializing in commercial real estate lending are "exposed to considerable risks from the commercial real estate sector".
Moody's named Aareal Bank, Berlin Hyp, Deutsche Hypothekenbank and Deutsche Pfandbriefbank. However, "their strong solvency profile" mitigates the risks "to a certain extent," as the rating agency further explained. The state support measures would also "cushion" the effects of the Corona crisis on the banks.
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