FRANKFURT (MNI) – German banks are likely to step up credit
provisions and keep core capital ratios unchanged over the next twelve
months, the Bundesbank said in its Monthly Report on Thursday.
According to a survey conducted by the central bank in July, German
banks expect rising credit volumes over the coming year, citing better
economic developments and rising demand.
The pick-up in credit will likely be primarily driven by rising
loans to small and medium-sized companies, the report said. In line with
this projection, “on average, smaller banks surveyed appeared somewhat
more optimistic in their assessment of credit developments ahead,” the
report said.
“According to results of the current survey, core capital ratios
will remain unchanged over the next twelve months, with large banks on
average expressing some more pessimism than small banks,” the Bundesbank
said.
Rating downgrades for structured products and debt instruments
should have the most severe negative effect on core capital ratios,
while balance sheet contraction and profit retention should drive up
core capital, the report said.
Some banks will have to raise core capital ratios as regulatory
authorities plan to introduce more stringent capital and liquidity
requirements ahead. Precise ratios required under new rules have not yet
been published.
New Basel III rules will likely tighten lending and reduce
investment during a transition period, Basel and the Financial Stability
Board said on Wednesday. However, the regulators said that the effect
should be temporary.
–Frankfurt bureau; +49-69-720142; frankfurt@marketnews.com
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