FRANKFURT (MNI) – There are no signs of an excessive reduction in
bank lending in Germany, but German banks could be affected via their
operations and commitments in southern and eastern Europe, where risks
of a credit crunch are much higher, according to Bundesbank board member
Andreas Dombret.

“In peripheral countries like Italy and Spain, tensions are by
contrast much higher,” Dombret acknowledged in an opinion piece for
German business daily Handelsblatt published Friday. “There and in
eastern Europe, the pressure on the financial system is especially great
and the risk of a credit crunch significantly higher.”

German and other foreign banks operating in these countries are
unlikely to escape the deterioration of profit perspectives, and the
rapid reduction of balance sheet positions could weigh on market prices,
he warned.

“In Germany, there has so far been relatively little tension,”
Dombret claimed. Although banks are shortening the maturities of new
loans somewhat, “there are no overall signs of a credit crunch” and
banks’ projects do not point to one either, he said.

The overwhelming majority of German firms are benefitting from
dynamic demand, declining debt and comfortable liquidity positions,
while the financial position of households has improved thanks to record
levels of employment, he noted.

A number of options are available for German banks to reinforce
their financial situation, including profit retention, dividend
reductions, a revision of employee remunerations and bonuses, the sale
of branch operations and an increase in own capital, preferably via
capital markets, Dombret said, reminding that banks in difficulty have
recourse to the state bailout fund Soffin.

Dombret pledged to be especially attentive to banks’ projects for
recapitalization to be submitted next week.

Given the need for European banks to meet higher capital ratios by
mid-year, the European Bank Authority will not conduct stress tests this
summer and data will not be collected for future tests, an EBA
spokeswoman told the Handelsblatt.

Next year the EBA is planning stress tests, a spokesman for the
German financial surveillance agency Bafin told the newspaper, citing
the agenda published by the EBA earlier this month.

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