So far, there have been neither major loan defaults nor a dramatic increase in risk provisioning at Volks- and Raiffeisenbanken as well as the savings banks, as the respective federal associations report. “The regional banks are ultimately solid as a rock,” says Heinz-Gerd Stickling, banking specialist at the consulting firm zeb in Münster, which is well known in the financial sector.
Several large banks have increased their risk provisions for potentially bad loans in recent months, including Commerzbank and several Landesbanken. After the recessions of the past, the waves of insolvency generally only came when the respective crisis had bottomed out. “This time too, corporate insolvencies will culminate in the upswing, in other words in 2021/22,” says zeb expert Stickling.
“Based on model assumptions, the value adjustments are likely to increase sharply in the coming quarters and reach their highest value in the second quarter of 2021,” says the Bundesbank in Frankfurt.
The value adjustments would thus be roughly as high as during the global financial crisis in 2009. The Bundesbank is optimistic: “Nevertheless, the German banking sector, especially the savings banks and credit unions, should be able to cope with this increase in value adjustments due to its solid equity base.”
If banks tighten the reins on lending, this can lead to a vicious cycle in the worst case: “Because banks have to be able to issue loans to finance the economic recovery, but there is not much room for that,” says Philip Wackerbeck, banking expert at Strategy & , the management consultancy of the auditing company PwC. “Especially in Germany the banks have the problem that they earn far too little to be able to replenish their reserves on their own.”
But the regional houses are obviously getting through the crisis well so far. The savings banks would be able to “increase their equity capital or create new reserves for the further course of the pandemic,” says a spokesman for the German Savings Banks and Giro Association. And the Federal Association of Raiffeisen Banks and Volksbanks (BVR) says: “Up to now, higher credit risks have only been identified in isolated cases for corporate customers of the cooperative banks.”
According to Bundesbank figures, lending in Germany has so far been unrestricted during the Corona crisis, the loan portfolio to non-banks in Germany and other euro countries grew by 3.3 percent from the beginning of the year to September.
“It is always said that a large wave of insolvencies will roll on us all, and that it will hit the customers of the regional banks in particular,” says Jürgen Gros, the president of the Bavarian cooperative association. “You can’t see it that way.”
But why is the situation at the regional banks obviously less bleak than some augurs feared? “The Covid-19 recession is very different from classic recessions,” says zeb banking expert Stickling.
Normally, a recession is preceded by a long period of weak growth, so that many companies are no longer at full strength at the beginning of the actual recession.
“The Covid-19 recession came almost overnight and without warning and it is actually a slow-motion recession because there are rescue packages of historical dimensions that cushion and delay a lot,” says Stickling. “Compared to the dot-com crisis of 2000 and the great financial market crisis of 2008, both companies and banks have much more equity and are much more robust.”
Regional banks primarily serve medium-sized customers, who have so far been less hard hit by the Corona crisis than large industrial and service groups.
Housing construction, which is important for both the savings banks and the Volks- and Raiffeisenbanken, is hardly affected. The proverbial house builders relentlessly mortar.
“With housing loans alone, the (Bavarian) institutes have recorded an average growth of almost seven percent on the private customer side from the beginning of the year to the end of September,” says GVB President Gros. “A large part of the assets of the regional banks are tied up in home construction financing,” says Stickling. “We are deeply relaxed there.”
A second factor: “One of the most important customer groups of the regional credit unions is the crafts, and most of the craftsmen have full order books,” says GVB President Gros. “The building trade is still at full capacity. Many other tradespeople managed to make ends meet with Corona aid.” The smaller medium-sized companies in the manufacturing industry got back to work relatively quickly after the first lockdown and were not affected by the current restrictions.
All of this does not mean, however, that the regional banks will be in the sun. There is still no solution in sight to their main problem: the ECB’s zero and negative interest rate policy, which is causing profits to shrink year after year. “That is the big challenge in the long term,” says Stickling. “In order to absorb the falling interest income, the banks have to keep costs down and develop new sources of income.”
© dpa-infocom, dpa: 201128-99-494097 / 2