BANKS OF GERMANY ARE GETTING READY FOR MASS BANKRUPTCIES

The German central bank has recommended commercial banks not to pay dividends in order to prepare for a possible wave of bankruptcies caused by the COVID-19 pandemic. The representative of the Deutsche Bundesbank Claudia Buch notes that at the moment, it is important to ensure the stability of the financial system and the payment of dividends can be started when the crisis is over.

According to the vice-president of the Bundesbank, the availability of the necessary capital reserves in the country's commercial banks allows them to withstand a possible development of events in a negative scenario. At the same time, one should prepare for a possible increase in the number of bankruptcies of German entrepreneurs who are the clients of banks.

Earlier, the Government of the Federal Republic of Germany introduced a moratorium on the compulsory filing of insolvency applications.

Thus, the German authorities are trying to prevent a possible increase in the number of corporate bankruptcies caused by the crisis in the whole healthcare sector. However, this measure is of a temporary nature, and therefore no one excludes the possibility of mass bankruptcies after the moratorium ends.

According to the analysts' report, the Bundesbank does not exclude that about 6 thousand persons will file for bankruptcy in the first quarter of 2021 (compared to 4,700 in the same period in 2020). In this case, the banks' caution in the issuance of the credits to maintain adequate capital ratios and comply with market and regulatory requirements could slow down the recovery of the German economic and exacerbate the economic downturn.

A member of the Board of the Bundesbank, Joachim Würmeling, states that it is important now that banks continue to do their job successfully. They should distinguish between "good risks" and "bad risks" when they lend money to borrowers, the financier said.

The main danger is that persisting low interest rates in the market may induce market participants to take higher risks in search of profits.

It is known that one of the leading banks in Germany, Deutsche Bank, is going through hard times. The financial institution was already close to bankruptcy before, and in 2019 it went to a serious reduction in the staff, having laid off about 18 thousand people.

Considering that Deutsche Bank is the largest holder of government bonds in Italy, Spain and other not the most prosperous countries of the US, experts believe that in the event of its insolvency, the entire financial system of Europe could fall to pieces. In the middle of this year, the media already called this bank a clockwork bomb, since the loss of money of the financial structure against the backdrop of the pandemic was huge.