The risks facing Germany’s financial system are increasing in light of global trade wars and a lack of economic growth, according to an assessment by the country’s central bank released on Thursday, reported dpa.
“The macro-financial environment deteriorated markedly over the course of last year, particularly against the backdrop of high uncertainty and the associated risks,” the Bundesbank said in its Financial Stability Review 2025.
There is a rising risk that customers will not repay their loans due to the weak economic environment, a trend that could worsen due to economic and structural challenges, the Berlin-based bank said.
Overall, while the capital base of German banks is solid, the resilience of large banks in particular should not be overestimated, as their risks may appear smaller on paper than they actually are, according to the report
Meanwhile, prices in the German commercial real estate market “have recently stabilised, but the situation remains fragile overall,” the bank said.
The market for commercial space has been increasingly under pressure in many countries for some time as more and more people work from home and customers order online.
“In the residential real estate market, rising prices and transaction numbers are signs of recovery,” the Bundesbank said.
“Overvaluations in the German residential real estate market unwound for the most part in 2024.”
Further risks for the German financial system could arise from an increase in government debt – with the new administration having unlocked billions in loans to boost defence and infrastructure.