Financial regulator Branson warns of risks in the real estate business

Mark Branson at the Handelsblatt Banking Summit

The Bafin boss, who has been in office since August 2021, has announced a tougher approach to the supervision of financial institutions.

(Photo: Marc-Steffen Unger for Handelsblatt)

Frankfurt The financial regulator Bafin warns German banks of setbacks in the real estate business. “We clearly expect a slowdown here,” said Bafin President Mark Branson on Wednesday at the Handelsblatt Bank Summit. The only question is whether the landing will be soft or hard.

The lending standards of the banks are decisive for this. For years, there has been a trend for borrowers to borrow more than their income when buying or building real estate, Branson said.

A new analysis by Bafin shows that this trend is flattening out. “But we’ve seen that 15 percent of all new home borrowers still need more than half of their net income to service the debt.”

Because of high inflation, many people have less income to pay off loans. In addition, interest rates for real estate loans have risen significantly. For many banks, the important mortgage lending business is therefore clouding over.

Top jobs of the day

Find the best jobs now and
be notified by email.

In addition to the “evergreen real estate market”, Branson considers corporate loan defaults and the interest rate turnaround to be the biggest challenges for the German banking sector. The rise in interest rates is very positive for financial institutions in the medium term, but put some institutions under pressure in 2022.

Because of the downturn in the markets, they have to accept valuation losses on securities and also have to pay more for their own refinancing. The increasing income from the lending and deposit-taking business does not compensate for this for many in the short term.

Banks face “at least temporary certain capital difficulties”

“Our analysis shows that this year will be a tough year for some banks,” Branson said. For the smaller institutions, which are directly monitored by Bafin, an increase in market interest rates by two percentage points will reduce profitability by around 40 percent on average in 2022. Bafin is therefore looking closely at “a few dozen” smaller institutes. “They could have some capital difficulties, at least temporarily.”

This is how the Handelsblatt reports on the 2022 banking summit:

Branson has headed the Bafin since August 2021. He replaced Felix Hufeld, who resigned early after the Wirecard scandal. In his first 13 months as head of Bafin, Branson has already changed the agency significantly. He wants the financial supervisory authorities to take tougher action in the event of grievances – and to test the limits at the same time.

“The boundaries we’ve crossed are more like the internal inhibitions that you find in any agency,” says Branson. He encourages employees to do things differently than in the past – and faster.

Bafin boss rejects criticism from the fintech sector

In addition, Bafin is increasingly making its measures public. It now provides information almost every day about higher capital surcharges for banks, growth restrictions or the dispatch of special representatives – for example at the smartphone bank N26.

In the fintech sector in particular, some accuse the Bafin of overreacting to the Wirecard scandal and slowing down innovations and new business models. Branson denies these allegations. “There is no free pass for business models that are newer,” says the Bafin boss. “You can’t be a little more relaxed when it comes to preventing money laundering.”

The same regulatory framework should apply to traditional banks and fintechs. “Competition through non-compliance with central standards in banking is not possible.”

More: More interventions and more public: The new course of the Bafin

source site-12