According to a study by the Leibniz Institute for Economic Research in Halle (IWH), the German banking sector might be faced with loan defaults up to EU120 billion this year.
According to the study, the coronavirus-related economic crisis will now prevent thousands of companies from repaying their loans. In the optimistic scenario, in which the German economy is recovering quickly, 6% and thus dozens of local banks would be at risk. In the worst-case scenario of a long economic downturn, up to 28% and hundreds of banks would be in serious trouble.
The loans at risk of default amount to EU127 billion in the optimistic scenario and EU624 billion in the pessimistic scenario. “Even if things go very well for the German economy, we think a new banking crisis is likely,” says IWH President Reint Gropp, who wrote the study together with IWH financial market researchers Michael Koetter and William McShane, to Focus magazine. “The state has understandably taken care of the real economy recently, but should not overlook possible dangers lurking in the financial sector.”
