Even as experts debate as to when the two- year global financial crisis will finally be over, Germany?s banks are expected?to post more?losses due to their exposures to Southern Europe and the US.
The German government has already provided a stimulus package running into euro 80 billion and is likely infuse more, depending on how the crisis pans out. More than 10,000 firms have received support for loans and guarantee of firms from the fiscal package announced. The loan and guaranteed programme was close to euro 115 billion.
Speaking to a group of visiting journalists, on a study tour organised by the Federal Government of Germany, officials noted that the ongoing crises would ?have a direct impact on the profitability for banks.
?German banks are exposed to other foreign risks. The losses are mainly arising out of their commercial real estate exposures in the US and Spain and Southern Europe,? said a banker.
Some of the reasons for the collapse of the German economy can be attributed to high liquidity in financial markets as a result of loose monetary policy in industrialised countries, build-up of currency reserves in threshold countries, extremely low interest rates, inadequate lending standards in US mortgage market and lack of market transparency among special purpose vehicles (SPVs).
The German economy is expected to see a strong deficit ratio-close to 5.5%?in 2010 but may bounce back to 3% by 2013.
Economists also believe that they may have the highest public debt this year and to fund this public deficit there may be a hike in the tax rates, which is not a good sign since unemployment is already on the rise.
The small and medium enterprises (SME) industry, which contributes close to 46% to the GDP, is on a declining trend. Most industries have shut and unemployment is on a rise.?About 49% of the total approved loans by banks are granted to SMEs. Currently, there are close to 13,130 applications made while only 9,058 have been approved. While banks may be flush with?liquidity, 50% of German companies had reported that they were being declined credit by banks during the first three months of the year.
Experts note that there are huge challenges ? the securitisation markets must be revitalised and the equity bases for banks need to be strengthened-to put the economy back on track.
According to the data from Bank for International Settlements in Basel, Switzerland, German banks had foreign claims of $330.8 billion involving Greece, Portugal and Spain by September 30. The banks now owe $306.8 billion and $156.3 billion of claims from ?French and U.K. banks respectively. The German federal governments were forced to bail out state-owned banks during the financial crises.
The biggest state-owned bank of Germany, Landesbank Baden-Wuerttemberg, received a 5 billion-euro while Dusseldorf?s WestLB AG is looking at shifting about a third of its assets into a so-called bad bank set up by the government?s Soffin financial industry rescue fund.
The exit strategies from the stimulus package ?for the region remains remote for now, noted analysts.