European banks are in a better position than US banks in terms of how they will be able to handle any pressure from the commercial real estate market after interest rates rise, but this does not mean that the Old Continent is currently out of the red zone. . “.zone”. Aggressive interest rate hikes, whose impact on the financial system has yet to be fully felt since the pandemic altered working conditions, have pushed office occupancy below pre-crisis levels. Moneyreview.gr mentions this in their post. The International Monetary Fund (IMF), in particular, notes that banks’ direct exposure to commercial real estate averages 6% of total bank loans in Europe, compared to 18% in the US as of 2022. And this means that Europe looks less vulnerable. risks, analysts say. However, as policymakers closely monitor the implications of higher borrowing costs, potential redlines are under scrutiny.

Scandinavian and German banks are in the most vulnerable position, especially in the event of systemic risks, British bank Barclays warned in a report. And although these risks were not discussed at the recent spring meetings of the IMF and the World Bank in Washington, these concerns were felt. IMF Managing Director Kristalina Georgieva stressed the need to monitor risks that may remain hidden in banks and shadow financial institutions. In its Financial Stability Report, the IMF highlighted the growing risks in the commercial real estate market, given their greater reliance on smaller banking institutions. “While there has been no major threat to banks so far, valuations in the eurozone commercial real estate market are expected to fall another 20% before dropping to their lowest point,” said Andrew Burrell, an economist at Capital Economics. . And in a recent survey by the US investment bank JP Morgan, which included investors from around the world, it seems that the next weak link is likely to be the commercial real estate market.

In Europe, where office space accounts for the largest percentage of the commercial real estate market, it is German and Scandinavian banks that seem to be more exposed to construction and this activity than they really seem. Now Barclays notes that if buying real estate for commercial use becomes a big systemic risk, Swedish banks are likely to face a very serious risk. Swedish real estate company loans increased to SEK 2.3 trillion ($223 billion) in 2021 from SEK 1.3 trillion in 2012. In conclusion, according to analysts, German real estate lending groups such as Aareal Bank, Deutsche Pfandbriefbank and Berlin Hyp have a much larger share of commercial real estate.