As Germany reels, some debate impact on banks
FRANKFURT: As Germany rolls out a 750 billioneuro economic stimulus package, officials and experts are discussing whether German lenders, including Deutsche Bank AG and Commerzbank AG, will be able to weather the economic fallout of coronavirus without state help.
Interviews with more than a dozen people, including government officials and senior bankers, show some officials fear that if the crisis persists, weakened lenders would choke off credit to the economy and worsen the situation.
For now though, several sources said Chancellor Angela Merkel’s government is focusing on propping up non-financial companies under the stimulus package and no action is expected on banks in the
near term. Their hope is that the support to nonfinancial companies through the aid package will prevent the loans from going bad, avoiding a hit to the banking sector, the sources said.
Deutsche Bank said it is financially strong, and its discussions with the government were focused on how the banking industry could support the real economy. Commerzbank pointed to its low proportion of non-performing loans of 0.9 percent to underscore its strength. In a statement to Reuters, the finance ministry said: “All Corona-based programs of the German government are explicitly focusing on the non-banking sectors. There are no plans to extend such programs to other sectors.”
The government believes the aid package has bought Germany three months of breathing space, three of the sources said. Nevertheless, a debate has begun over what could be done to reinforce the banks should the need arise. Officials have discussed various options in recent weeks to reinforce the banking sector, should it become necessary, several sources said. These include a state agency taking stakes in banks to inject capital, said four of the
sources. State guarantees could be given to vouch for the creditworthiness of listed banks as well as statebacked commercial lenders, bolstering their standing, one person said. A spokesman for the finance ministry denied these options were currently under consideration. “None of this is happening,” he said.
Risk build-up
Lars Feld, the chairman of the German government’s council of economic experts, played down current risks to lenders such as Deutsche. “If you can avoid insolvencies of companies, the banks are safe,” he told Reuters in an interview. “But if additional support is required for the banking sector, the government will do it. All of this assumes, however, that the current measures have failed,” Feld said.
The council, which advises the chancellery, finance ministry and economy ministry on policy, warned the government in an 101-page report in late March that an economic slump could spill over to banks. “If tackling the coronavirus takes longer, the number of insolvencies will rise, which could, in turn, put banks in distress,” the council wrote. —Reuters