Not just Deutsche Bank. All the turmoil of German banks
What did Bafin ask of the German banks and what consequences there will be. The article by Emanuela Rossi
Putting hay on the farm for the post-pandemic. This is the objective on which Berlin is aiming, which has asked German banks through the BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht), the country's financial supervisory authority, to set aside around 22 billion euros of extra capital by 2023. A frightening is above all a possible real estate bubble.
WHAT BAFIN DECIDED AND WHY
Therefore, Bafin has established that the countercyclical buffer be brought from the current 0% to 0.75% by 1 February 2023 and that an additional buffer of 2% is introduced for residential mortgages. In particular, credit institutions will have to build around 17 billion in the countercyclical buffer and another 5 billion in the sectorial systemic risk buffer. As the Reuters agency recalls, in fact, the regulators reduced the additional reserve requirements to zero at the beginning of the crisis, but real estate prices increased a lot due to low rates and the market – according to the Bundesbank – is now overrated by 10% to 30%.
"Banks will be able to meet this requirement almost entirely from the existing excess capital – reads a note from the BaFin in a note -. Only a few institutions have a small additional capital requirement ”. In addition to the new measures, the German supervisory authority has asked banks to be more cautious in evaluating properties and granting new loans and to conduct careful analyzes on the ability of borrowers to pay the installments even when interest rates rise. The fear – which has been felt for some time – is that banks may overestimate the value of their loan guarantee and are not sufficiently prepared for possible interest rate hikes as many long-term loans are at fixed rates.
According to Bloomberg reports during a conference call, Bundesbank vice president, Claudia Buch, said that "the financial cycle is continuing to expand and more strongly than before the pandemic, as well as stronger than in other European countries" and therefore the the fear is that "macroeconomic risks may be underestimated". After all, said the head of Bafin, Mark Branson, "when it comes to financial stability, we need to switch to a prevention mode".
WHO WILL BE MOST AFFECTED ACCORDING TO CITI
The squeeze decided by the BaFin will have repercussions on the German banking system and according to the experts of the American multinational Citi – quoted by Mf – “the measures will increase the requirements for the purposes of the Cet1 report of the sector by 7 basis points”. In particular – it emerges from the analysis – the most affected institutions should be Deutsche Bank (36 basis points of the group's risk-weighted assets), Commerzbank (34 basis points), Aareal (18 basis points), Bawag and Ing (for both 17 basis points), Deutsche Pfandriefbank (13 basis points), Unicredit (10 basis points).
According to Citi, banks have two options: "Generate capital internally or absorb higher requirements". However, analysts say, “on average European banks have 200 basis points of reserves between their current mda (maximum destrutable amount in relation to earnings) requirement and management target. Therefore 7 basis points can be easily absorbed in the existing buffers, barely affecting the excess of capital compared to the management objectives ".
With the increase in management objectives to meet BaFin's requests, however, "the excess capital as a percentage of market capitalization could drop from 7% to 6%" and in this case too, the two would pay the higher price. major institutions, Deutsche Bank and Commerzbank.
Certainly – is the forecast of Citi – there will be an impact on the profitability of German banks which “can choose to compete less or revalue new loans”. Furthermore, the risk is that other EU countries may also follow the German authorities but analysts of the multinational are optimistic as they foresee "solid growth in pre-provisioning profits, with an upside risk due to the consensus on profits, and the prospects for returns on capital are very attractive ".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/non-solo-deutsche-bank-tutte-le-turbolenze-delle-banche-tedesche/ on Sun, 23 Jan 2022 06:17:03 +0000.