MNI BRIEF: German Banks Stable, But Rate Risks Remain - Buba

Germany’s financial system has so far coped well with higher interest rates and elevated levels of uncertainty, the Bundesbank said Thursday, but some effects remain unrealised, with structural change in the economy likely to add further credit risk.

Bank profits have risen as result of successive interest rate hikes, but higher charges and tighter conditions mean credit demand is weak, the 2023 Financial Stability Review found, while a “considerable volume” of hidden reserves have been used to cushion market price losses on assets. Credit risk is particularly elevated in the commercial real estate sector, where higher interest rates are being passed on to borrowers more quickly.

“The current good earnings situation is enabling institutions to further strengthen their capital base and thus their resilience to adverse developments,” said Bundesbank vice-president Claudia Buch, who joins the ECB as head of the Supervisory Board from January. Priority should be given to implementing the terms of Basel III and enhancing the regulatory framework to curtail risks arising from non-banks and target adjustments in liquidity regulation, she added.