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Germany Mulls Bank Capital Relief to Counter Coronavirus Hit

Bloomberg logoBloomberg 3/10/2020 Birgit Jennen, Nicholas Comfort and Steven Arons
a person wearing a purple shirt: A doctor carries a syringe and swab kit in a kidney dish before carrying out coronavirus testing on a patients at a drive-in clinic at the hospital in Gross Gerau, Germany, on March 9. © Bloomberg A doctor carries a syringe and swab kit in a kidney dish before carrying out coronavirus testing on a patients at a drive-in clinic at the hospital in Gross Gerau, Germany, on March 9.

(Bloomberg) --

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Germany’s banking watchdogs are debating relief for lenders to counter the hit from the coronavirus, according to people familiar with the matter.

Officials from the Finance Ministry met with counterparts at BaFin and the Bundesbank on Monday in Berlin to discuss easing a planned rule that banks bolster reserves in good times, said the people, who asked not to be identified because the matter is private. Some officials oppose scrapping the so-called counter-cyclical capital buffer because they don’t yet see data worsening enough to warrant the move.

A final decision wasn’t taken at Monday’s meeting but could come at anytime as the coronavirus crisis escalates, one person said.

The prospect of relief sent shares of Deutsche Bank AG, the country’s biggest lender, and Commerzbank AG soaring. The regulators’ talks reflect concern that the fallout from the coronavirus threatens to further weaken their finances. Deutsche Bank hasn’t earned a profit since 2014 and last year was prodded by the government to discuss a merger with Commerzbank. Those talks collapsed within weeks.

Both banks could be hard hit by increased loan defaults and depressed demand for lending, the banks’ most important revenue source. They will both post losses this year as a result, Goldman Sachs Group Inc. analysts led by Jernej Omahen said in a note Tuesday.

The two banks are among the biggest providers of trade finance to Germany’s economic backbone, its exporting industries. Commerzbank also has about 9.5 billion euros worth of exposure to Italian sovereign bonds, which have come under pressure as Italy has become an epicenter of the crisis.

German Banks Face Higher Capital Buffer Amid Low Profitability

The German Banking Association is also preparing to lobby the government for relief, according to other people familiar with the matter. Their list of demands includes exemptions from new accounting standards called IFRS9 that they believe could make the slump worse because they require banks to make provisions for potential losses much sooner than in the past, said these people.

Germany has come in for criticism for implementing its counter-cyclical capital buffer too late. While other countries moved months or even years earlier, the group of German watchdogs only opted to do so in May and gave banks until mid-2020 to meet a capital goal that it raised by 0.25% of their risk-weighted assets. That figure is equivalent to about about 5.3 billion euros ($6 billion) of capital, BaFin said at the time.

(Add outcome of meeting in third paragraph.)

--With assistance from Alexander Weber.

To contact the reporters on this story: Birgit Jennen in Berlin at bjennen1@bloomberg.net;Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net;Steven Arons in Frankfurt at sarons@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, James Hertling, Christian Baumgaertel

For more articles like this, please visit us at bloomberg.com

©2020 Bloomberg L.P.

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