Malaysia

Malaysia

Jho says it ain’t so

Emerging market debt

Emerging market debt

Punishing original sin

Germany: Europe’s hidden banking crisis

Germany's banking system is in a sorry state, with institutions saddled with large non-performing and non-core assets on their books. It's no wonder Germany is in no mood for a pan-European bank regulator.


According to consultant PwC, Germany tops the league tables for non-performing debt in Europe with €196 billion loans outstanding in July 2012. But just €4.3 billion of non-core asset sales have taken place in the country this year after negligible activity in 2010 and 2011. Even as banks elsewhere in the region come under growing pressure to shrink their balance sheets those in Germany show little sign of addressing the problem, short of transferring billions of euros worth of assets into state-owned bad banks. It is of little surprise that the country is so reluctant to see any pan-European bank regulator gain supervision over any other than its largest banks.

“Germany’s banking system isn’t in great shape and it doesn’t also want the burden of supporting other countries’ banks,” one banker told Euromoney last month. “It has a network of co-operative and savings banks that sustain each other through a complex system of cross-guarantees and there is limited appetite to surrender supervision of this or to insure the deposits of other national banking systems.”

Speaking at the Institute of International Finance meeting running alongside the IMF/World Bank meetings in Tokyo last month, Elke König, president of Germany's Federal Financial Supervisory Authority (BaFin), laid bare some of the tensions, while paying lip service to the need for a single European supervisor. “Banks that are not systemically important should, as a matter of principle, continue to be supervised nationally because national supervisors are better able to assess the particularities of local banks and their environment,” König said.

But at some stage the burden of non-performing and non-core assets on their books will have to be addressed by Germany’s banks.
Germany's bad debt

"Generous state support and widespread use of cheap LTRO money from the ECB have certainly delayed the day of reckoning for many German banks. And the contrast between the loan portfolio sale market in Germany and that of other high-NPL jurisdictions such as the UK, Ireland and Spain is striking. However, federal largesse is not infinite and sales must come. "

As banks in the UK, Ireland and Spain accelerate their disposals of non-core loan portfolios, one European country is conspicuous by its absence – Germany.

For more on this story see Euromoney's free-to-access feature now
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