{"id":3049,"date":"2024-02-15T10:24:19","date_gmt":"2024-02-15T08:24:19","guid":{"rendered":"https:\/\/ch.jfdi.cc\/?p=3049"},"modified":"2024-02-15T10:24:19","modified_gmt":"2024-02-15T08:24:19","slug":"explainer-european-banks-and-their-1-5-trillion-commercial-property-headache","status":"publish","type":"post","link":"https:\/\/ch.jfdi.cc\/?p=3049","title":{"rendered":"Explainer: European banks and their $1.5 trillion commercial property headache"},"content":{"rendered":"<p>European banks have about 1.4 trillion euros ($1.50 trillion) in loans to the troubled commercial property industry, amid a steep fall in office prices on both sides of the Atlantic and investor concerns about lenders\u2019 ability to handle the risk.Banks in Germany have become a particular focus because the country is in its worst real-estate slump in decades \u2013 one marked by insolvencies, halted construction and a freeze in property deals. Investors dumped the shares of one of Germany\u2019s top property financiers last week, concerned about its exposure to the U.S. market.Fallout from the downturn also has the potential to affect banks in France and the Netherlands, which are among Europe\u2019s biggest commercial real estate lenders.The following outlines the current state of the real-estate market, the banks that have significant exposure, and the outlook:<strong>WHERE ARE COMMERCIAL PROPERTY PRICES HEADED?<\/strong>In Germany, Europe\u2019s largest economy, commercial property prices dropped 10.2% in 2023, according to the VDP banking association this week. Declines have been similar on average across the euro area, based on data from the European Central Bank.The real-estate sector accounted for roughly a fifth of Germany\u2019s output, with low interest rates pulling billions of euros into property.But higher interest rates and rising building costs have tipped some developers into insolvency as bank financing dries up, deals freeze and prices fall.In the United States, higher interest rates, refinancing difficulties and lower office occupancy have hit its commercial real estate sector hard, fanning fears of a global downturn.Industry experts say prices have further to fall. There is currently not much price transparency, with owners unwilling to sell at reduced prices and asset managers slow to revalue their holdings.\u201cValuations are still too high. Everybody knows it. But at a certain point of time, people need to drop their pants,\u201d said Alexandre Grellier, founder of Drooms, a service provider to property dealmakers.How badly banks are effected depends on the scale of the dip in the market. Many property companies in Germany, for instance, hope for a turnaround in the middle of this year, while other executives predict a worsening rout until 2025.<strong>WHICH GERMAN BANKS ARE HEAVILY EXPOSED?<\/strong>With 285 billion euros in commercial property loans, German lenders account for around a fifth of the EU banks\u2019 1.4 trillion euros in loans to the sector, based on European Banking Authority data.Among German banks, Deutsche Bank DBKGn.DE, the country\u2019s largest, has the most in outstanding loans to the sector, followed by two state-backed Landesbanken.Deutsche earlier this month disclosed 17 billion euros in loans to the hard-hit U.S. commercial property market, more than 3% of its entire book. That would make up about a fifth of the 76 billion euros that EU banks overall have lent in the United States, based on EBA data.<strong>WHAT\u2019S GOING ON WITH PFANDBRIEFBANK?<\/strong>Deutsche Pfandbriefbank (PBB), created after the global financial crisis more than a decade ago, is one of Germany\u2019s top property financiers.It has 5 billion euros \u2013 or 15% of its loans \u2013 tied up in the U.S. commercial market, PBB has said.Last week, it doubled its risk provisions, and investors got spooked, dumping its shares and bonds as short sellers moved in. PBB reacted by issuing two separate announcements that sought to reassure the public about its health.Late on Wednesday, the credit rating agency S&amp;P downgraded PBB due to its links to commercial real estate and gave it a negative outlook.Most EU banks have no direct exposure to U.S. commercial real estate, with German banks being the exception, credit ratings agency Moody\u2019s said in a report on Wednesday.<strong>WHAT ABOUT BANKS ELSEWHERE IN EUROPE?<\/strong>Some European banks are even bigger in commercial real estate lending than German banks, with France and the Netherlands dominating, based on EBA data. Rabobank and BNP Paribas top the chart.Loans from French banks to the sector are slightly ahead of Germany\u2019s, according to the EBA data, Netherlands comes in third, ahead of Italy and Spain.<strong>WHAT\u2019S THE OUTLOOK?<\/strong>Bleak, many experts say, though a cut in interest rates later this year could provide some relief and not all European property markets are in as bad a shape as Germany.\u201cA trend reversal is not yet in sight for property prices, despite frequent public speculation. The situation will remain difficult for the time being in 2024,\u201d said VDP\u2019s chief executive Jens Tolckmitt.The ECB warned in November that the property slump could last years, although it said the sector was not big enough to create a systemic risk for lenders.The International Monetary Fund has said smaller and regional banks, particularly in the U.S., as well as nonbank financial intermediaries with high exposure to real estate, could face challenges.Last month, the head of Germany\u2019s financial regulator stepped-up his warnings, predicting 2024 will be less rosy for bank profits and that real estate was an increasing risk.(Reuters)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>European banks have approximately 1.4 trillion euros (.50 trillion) in loans to the troubled commercial property industry. German banks, in particular, are heavily exposed due to the country&#8217;s worst real estate slump in decades. Commercial property prices have dropped in Germany and across the euro area. Deutsche Bank has the most outstanding loans to the sector among German banks, followed by two state-backed Landesbanken. Deutsche Pfandbriefbank (PBB), one of Germany&#8217;s top property financiers, has 5 billion euros tied up in the U.S. commercial market. The outlook for the real estate market is bleak, with experts predicting a continuing downturn.<\/p>\n","protected":false},"author":5,"featured_media":3050,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"Default","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[611,33,3,50,26,379,599,201,51,499,576,210,613,187,419,34,284,287,586,618,114,544],"class_list":["post-3049","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cyprus","tag-banks","tag-companies","tag-cyprus","tag-ecb","tag-economy","tag-eu","tag-euro","tag-europe","tag-european-central-bank","tag-france","tag-germany","tag-health","tag-insider-economy","tag-international","tag-italy","tag-markets","tag-property","tag-real-estate","tag-spain","tag-top","tag-top-news","tag-united-states"],"acf":{"keyphrase":"","keywords":"","sourceimg":"","country-category":""},"yoast_head":"<!-- This site is optimized with the Yoast SEO 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