Commerzbank AG said that Germany could face a slump similar to the contraction seen after the 2008 financial crisis if Russia were to cut off gas supplies.
A bellwether for Europe’s largest economy because it caters to Germany’s small and medium-sized companies, Commerzbank said it would expect to set aside another 500 million euros to 600 million euros (US$509 million to US$611 million) for bad loans as a result.
Last week, larger rival Deutsche Bank AG said that it would have to stash an additional 1 billion euros over two years in such a scenario.
Photo: AP
Germany is among the countries most vulnerable to threats of a shutoff because it built up its reliance on cheap Russian fuel over the past decades. German Minister of Economy Robert Habeck has said Russia’s moves risked a collapse of energy markets and has drawn a parallel to the role of Lehman Brothers Holdings Inc in triggering the credit crunch.
For now, corporate clients “are still doing fine,” because they built up liquidity during the COVID-19 pandemic, Commerzbank chief financial officer Bettina Orlopp said in an interview with Bloomberg TV. “If there would be a complete gas stop, which is a likely scenario also still, then we believe we would see a recession in Germany.”
The potential additional provisions outlined by Commerzbank and Deutsche Bank are equivalent to about 20 basis points of their loan books, they said, though Commerzbank assumes government support in its worst-case scenario while Deutsche Bank does not.
“Every day, every week helps because people get prepared, companies get prepared, the government is preparing,” she said. “The third quarter will be relevant, because hopefully we will know even more, but it’s quite a volatile quarter to be expected.”
Commerzbank also said that it faces an increasingly uphill struggle to keep a lid on costs in the coming years because of rampant inflation.
“For this year, we think that we can really manage the inflation headwinds we see on the energy side, but also on the salary side,” Orlopp said. “Next years — 2023, 2024 — the story will be different, becoming more difficult.”
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