German property lender Aareal incurs largest loss this century
German property lender Aareal set aside $478 million for soured loans in 2023, a record high due to a severe commercial real estate downturn, Reuters reported on Thursday.
The bank’s full-year allowance for loan losses grew to €441 million ($477.78 million) from €262 million, more than double the €192 million in 2022.
The amount set aside for loan losses is the largest this century, exceeding a previous high during the pandemic. This coincides with a significant drop in both prices and demand for commercial real estate in the US and Germany.
Aareal, one of Germany’s largest property lenders, anticipates a challenging US office property market in 2024.
During 2023, commercial real estate prices experienced a 10 per cent drop, marking a rapid intensification of their decrease throughout this decade.
The bank’s domestic competitor, Deutsche Pfandbriefbank (PBB), has also faced significant pressure, with its shares falling nearly 40 per cent this year.
Last year, Aareal withdrew from the stock market when a buyout group privatised the bank, although it continues to issue bonds. One of its most hazardous bonds, known as AT1, has seen a decrease in value, albeit not as drastic as that of PBB’s.
Last year, Aareal predicted credit losses of up to €210 million but ended up doubling its estimate.
