CRE Lending Continued to Pressure German Banks' Asset Quality in 2024

This commentary focuses on German Banks` exposure to Commercial Real Estate (CRE) lending and the impact on their asset quality.

-- The CRE sector continues to face uncertainty despite some signs of price stabilisation in 2024.
-- Office lending remains a source of risk, particularly in the U.S., but also in Germany.
-- German banks are highly exposed to CRE, the sector that led asset quality deterioration in 2024.
-- The current turmoil in global trade might have additional negative impact on industrial and logistics properties, which have been well performing segments so far.

"While CRE lending constitutes the more troubled portfolio of German banks, we note that all banks have high levels of collateralisation, perform active portfolio management and maintain conservative loan-to-value ratios, in addition to conservative provisioning." said Borja Barragán, Assistant Vice President of FIG at DBRS Morningstar. "Nevertheless, we anticipate that some of the outstanding challenges for the sector will likely persist in 2025."