Fed calls for banks to prepare for a surge in corporate bankruptcies

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The German Federal Bank (Central Bank) announced on the 13th that a company with a weak financial position went bankrupt due to the spread of the new corona virus, and the real estate boom is beginning to fade. Meanwhile, banks recognized that they needed to prepare for a surge in corporate bankruptcies.

The Fed has seen a 35% increase in corporate bankruptcies by March, 6000 cases per quarter, as some of the bankruptcy grace measures introduced by the government in March (← from past articles) have expired. He said it could be. This is the highest level since 2013.

“The difficult economic environment raises the risk of a surge in corporate defaults in the coming quarters,” he said. Corporate bankruptcies are expected to increase in the manufacturing industry compared to the service and construction industries.

However, while lending to the real estate and construction industry accounts for 23% of the total lending, the ratio of the hospitality industry, which has the greatest impact, is less than 2%, so the impact on banks is expected to be relatively suppressed.

In addition, the Fed believes that the new coronavirus infection will also hurt the real estate boom that has continued over the last few years. “Rising unemployment and rising personal bankruptcies will lead to mortgage defaults, while rising corporate bankruptcies and changing office demand will have a negative impact on the commercial real estate market,” he warned.

Source Reuters

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