Germany in the credit pain trap: bankruptcies are rising by leaps and bounds!

Germany in the credit pain trap: bankruptcies are rising by leaps and bounds!

Germany faces a worrying increase in loans at risk of default in 2023. According to a study by the consulting firm Bearingpoint, the number of non-performing loans (NPLs) increased by 24.9 percent compared to the previous year, which is the highest increase in Europe. In comparison, the European average was just 1.1 percent. This development could have a significant impact on economic growth in Germany.

A main factor behind the increase in bad loans is the sharp increase in corporate bankruptcies. In 2024, there were 21,812 bankruptcies in Germany, the highest number since 2015. This development had already been expected by experts after government support from the corona pandemic ended. In addition, high energy prices, bureaucracy and political uncertainty are putting pressure on companies.

Challenges in the commercial real estate sector

Another key influence on rising NPLs is massive losses in value in the commercial real estate sector. Banks face challenges, especially in times when demand for commercial real estate is falling. The trend towards working from home and the growth of online shopping are significantly increasing the pressure on this market. The banks themselves have become more cautious about granting loans because they have to act more cautiously due to the increased risks.

The situation is particularly tense for German banks. Compared to other European countries, these are severely affected by bad loans. However, despite the difficulties, many banks were able to stabilize or even increase their net profits. The average total capital ratio of banks increased to 23.5 percent in 2024, representing a positive sign for the stability of the European banking sector for the third year in a row.

Outlook for future development

A further increase in corporate insolvencies in Germany is forecast for the current year. Lending risks are expected to continue as companies continue to suffer from the above-mentioned pressures. Rising loan defaults in the commercial real estate sector are seen as one of the main causes of the growing number of loans at risk of default. A loan is considered “non-performing” if there is little chance that the borrower will repay the money in full, which can lead to long-term losses for banks.

Overall, the current situation shows that Germany is facing enormous economic challenges, while the banking sector is trying to address the growing risks. Despite the difficult circumstances, there remains hope that the markets will stabilize.

This worrying development raises questions about Germany's future economic stability. It remains to be seen how the situation will develop in the coming months. You can find more information on this topic at South German newspaper and n-tv.