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German banks tipped to write off €90bn as the economy recovers

German banks may have to write off another €90bn on bad loans and securitisation instruments, threatening profitability even as the economy recovers from recession, the Bundesbank said.

Further writedowns on loans may range from €50bn to €75bn, the Frankfurt-based Bundesbank said yesterday in its Financial Stability Report. Banks may also need to write off another €10bn to €15bn in losses from securitisation instruments, mostly collateralised debt obligations, it said.

"If the economic recovery continues, which the latest forecasts indicate, losses would be lower," Bundesbank board member Hans-Helmut Kotz said at a press briefing. Still, "it would be wrong to declare the financial and the related economic crisis over".

The world's largest financial-services companies have racked up more than $1.7tn (€1.1tn) of losses and write-downs since the start of the financial crisis, according to Bloomberg data. German banks have so far written off at least $115bn. Deutsche Bank AG chief executive officer Josef Ackermann said on October 12 that loan defaults still pose a risk and that the financial sector's situation is "fragile."

Growth

"The financial markets have now recovered significantly, and recently there has been a perceptible improvement in the outlook for growth," Mr Kotz said. "Nevertheless, further tests for German banks look likely."

While writedowns on loans may not yet have peaked, demand for credit it likely to grow as the economy improves, the Bundesbank said in its report. Banks must be ready to make loans to businesses in order to avoid the risk of a credit crunch, the report said.

Irish Independent