Overflow of Substandard Loans Strains German Financial Institutions
In a challenging economic climate, German banks are grappling with a significant increase in non-performing loans (NPLs) in 2024, marking a nearly 25% rise compared to the previous year. This steep increase is in stark contrast to the average rise of just 1.1% across 163 European banks[1].
The root causes of this sharp increase in Germany can be traced to a surge in corporate insolvencies, with a record 21,812 business bankruptcies reported last year, the highest figure since 2015[1]. The surge was anticipated due to the expiration of government COVID-19 support programs and additional pressures from high energy costs, bureaucratic hurdles, and political uncertainty[1].
Another significant factor contributing to the rise in NPLs is the distress in the commercial real estate (CRE) sector. Structural shifts such as reduced demand for office spaces due to remote work trends and persistent vacancies in retail properties, partly caused by the rise of online shopping, have led to rising defaults in CRE loan portfolios[1][3][4].
These factors combined explain why German banks are facing more pronounced NPL growth compared to their European counterparts. However, it's worth noting that despite these challenges, the overall European banking sector remains resilient, with many banks maintaining or growing profits and improving capital ratios[1].
The increase in corporate insolvencies and the CRE sector distress has led to a reduction in lending in the market for commercial real estate in many countries. This trend could have far-reaching implications for the German economy, as banks may incur losses from non-performing loans, potentially affecting the granting of new loans[2].
In summary, the sharp increase in Germany's NPLs is due to the significantly increased number of corporate insolvencies and the massive value losses and increasing credit defaults in the commercial real estate sector. This explains why German banks are experiencing a notably higher increase in non-performing loans compared to the European average in 2024[1].
References: [1] BearingPoint, 2025. "European Banking Sector: Resilience in a Challenging Environment." [2] European Central Bank, 2025. "Banking Supervision: High Non-Performing Loans in Germany." [3] Landesbank Hessen-Thuringia (Helaba), 2025. "Annual Report 2024." [4] Federal Statistical Office of Germany, 2025. "Corporate Insolvencies in Germany 2024."
Community policy should address the sharp increase in non-performing loans (NPLs) in German banks, potentially including vocational training programs for workers in industries affected by corporate insolvencies and commercial real estate distress. In light of the finance sector's current struggles and the potential consequences for the German economy, a focus on restructuring and risk management in banking-and-insurance policies may be warranted.
