(Bloomberg) -- Germany’s central bank said financial regulators are keeping a close watch on risks to lenders and investors from their exposure to commercial property amid a poor economic outlook.
Risks related to the asset class “remain manageable” for the financial system because a spike in losses on underlying loans is concentrated at “a handful of banks and insurers,” the Bundesbank said on Thursday. Still, liquidity risks in open-ended funds could amplify those developments, the central bank said in a statement.
A rapid succession of interest rate increases starting in 2022 has hit property values and made it harder for real estate developers to repay loans. That risk remains, even though rates earlier this year began to come down again.
“The financial system is facing acute challenges due to geopolitical tensions and a weak economy,” said Michael Theurer, a member of the Bundesbank’s executive board. This makes regulators “more vigilant” on commercial real estate, he said.
Given the wider risks, a package of additional capital buffers that regulators ordered banks to build up in 2022 “remains appropriate,” the Bundesbank said. It said “an orderly reduction of vulnerabilities in the residential real estate market has become more likely.”
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