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Research Announcement:

Moody's - Several German banks face significant risk from exposure to commercial real estate

 The document has been translated in other languages

24 August 2020


Frankfurt am Main, August 24, 2020 --

  • Germany's banks are among Europe's most exposed to commercial real estate lending
  • Drop in commercial property prices to hurt bank collateral levels

Several German banks face significant risks from their commercial real estate (CRE) exposure, given the cyclicality and interconnectedness of the market with the both the financial sector and the economy, says Moody's Investors Service in a new report.

Banks in Germany are among the most exposed in Europe to commercial real estate. The total volume of lending to the sector in the European Union was estimated to be around €1.6 trillion in 2019, with German banks accounting for 27% of the total. In particular, German specialised CRE lenders are significantly exposed to the commercial real estate sector.

"A drop in commercial property prices in the most vulnerable subsectors will affect collateral and loan-to-value ratios in the banks' portfolios," said Christina Holthaus, a Moody's analyst. "Depending on the length of the crisis, we expect payment deferrals, defaults and declining collateral values to result in deteriorating asset quality, increasing non-performing loans and provisioning needs, as well as reduced earnings."

The hotel, non-food retail and office space sub-sectors are the most vulnerable within the commercial real estate industry. Demand for office space could be crimped going forward as companies increasingly adapt to working remotely, whereas commercial real estate exposed to the travel and leisure industries has been severely impacted by travel restrictions and social-distancing measures imposed due to the coronavirus. Moody's expects increasing store closures and insolvencies this year, putting loan repayments in these sectors at risk.

While German specialist CRE lenders, such as Aareal Bank AG (A3/A3 negative, baa3), Berlin Hyp AG (Aa2/Aa2 stable, ba1), Deutsche Hypothekenbank (Actien-Gesellschaft) (A3/A3 stable, ba3) and Deutsche Pfandbriefbank AG, stand out due to their significant concentration in lending to the sector, their strong solvency profile mitigate these risks to some degree. Also, government support measures in response to the coronavirus will soften the impact on the banks' credit profiles.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Christina Holthaus
Analyst
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Alexander Hendricks, CFA
Associate Managing Director
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

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