German regulator warns about commercial property, bank profits in 2024

The logo of Germany’s Federal Financial Supervisory Authority BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) is pictured outside an office building of the BaFin in Bonn, Germany, April 15, 2019. Photographer Wolfgang Rattay

By Reuters

The head of Germany’s financial market regulator said that 2024 will be less rosy for bank profits and that commercial property was the biggest risk, in stepped-up warnings as Europe’s largest economy undergoes its biggest real estate crisis in decades.

The nation’s financial regulator BaFin has long warned of the risks in the once-heated property sector, but the comments from BaFin President Mark Branson in a podcast aired on Tuesday took on a more pessimistic tone as the industry writhes from higher interest rates, insolvencies and a sharp slowdown in transactions.

“Many went overboard in times of extremely low interest rates. That is why a necessary correction has come,” Branson told the podcast Finanz-Szene, calling real estate “risk No. 1”.

The problems of developers and real estate companies will depress prices and transactions “for a while”, he said.

“That will probably not come back so quickly,” he said, adding that the broader financial sector would be able to digest the problems but that individual players could be harder hit.

Branson said that 2023 was especially good for profitability but 2024 will be “more difficult”.

Higher interest rates and the income that generates was a boon to banks in 2023, Branson said in the interview.

“But a lot of costs in the loan books come with a time lag and we will see that in 2024 and in the following years,” he added.