German NPLs set for Covid-19 'spike'

The coronavirus pandemic is expected to drive up non-performing loan (NPL) numbers this year, according to new research from Germany's federal association of loan purchasers and servicers (BKS).

BKS suggests that the NPL volume in Germany alone could rise from €22 bn at year-end 2019 to €100 bn by the close of 2021.

Pan-European asset and investment manager CR Investment Management has reported that it is already receiving consultancy requests concerning precarious real estate debt.

Torsten Hollstein, managing director of CR Investment Management said: 'Even at this time, the market is already showing signs of distress. Over the next two or three months, we will see a sharp increase in the number of NPLs.

'This development is not likely to ease up before the end of next year. At the moment, we are receiving first requests to take on workout mandates for real estate financing arrangements and for the properties or portfolios financed through them.'

Despite government action to support businesses during the crisis, Hollstein notes that not every form of debt financing is covered by the recent state interventions, with real estate loans rarely covered.

Germany's NPL timeline
NPLs have been a fairly insignificant part of the German financial scene in recent years, after considerable success in eliminating toxic debt. Data from CR Investment Management shows that between 2003 and 2007, the NPL ratio in Germany dropped from 5.2% to 2.7%, although the global financial crisis (GFC) sent it back up to 3.3%.

In the years since, the ratio was reduced to 1.3% and has become a relative non-issue for the industry. However, with the coronavirus crisis affecting all areas of the economy - in contrast to the GFC which chiefly struck the finance and property sectors - numbers are likely to change in the next few months.

Hollstein suggests that collection losses on different scales are now threatening property owners in every asset class, while the credit-worthiness of many tenants has already suffered visibly.

'Coming after a decade-long boom cycle on the real estate markets, the present situation is new for many market players, and there is a lack of expertise in dealing with such one-off situations. So, the proper handling of the upcoming challenges calls for experienced specialists,' Hollstein said.

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