The German financial regulator, Bafin, has increased its scrutiny of the country’s financial institutions in their management of real estate risks. According to Raimund Röseler, the top banking supervisor at the agency, a campaign of inspections was launched last year to assess the commercial real estate financing of all institutions involved.
Some banks, Röseler stated, had not previously taken sufficient risk provisions for potential loan defaults and were subsequently required to increase their provisions. The situation in the markets for office buildings, shopping centers and other commercial real estate has been tense for about three years, with rising interest rates and construction costs, as well as the trend towards more home office work, being the main reasons.
Commercial real estate credits have a significant importance for German banks, as they accounted for around nine percent of the total balance sheet in 2024, according to Bafin. Röseler reported that more defaults were seen last year, with all banks active in this business sector being affected, except for a few exceptions. The Bafin considers the risk of follow-up financing for existing credits and loans to project developers to be particularly high.