DZ Bank’s Pessimistic Outlook on Consumer Debt

By Tom Sims and Alexander Hübner

FRANKFURT (Reuters) – Germany’s DZ Bank has become more pessimistic about consumers’ ability to repay debts due to rising rents and living costs in a stagnating economy.

CEO Cornelius Riese warned of “overstretched” borrowers unable to repay loans, shifting banks’ focus from corporate defaults to consumer debt risks. DZ Bank allocated 86 million euros ($95 million) in provisions to cover potential unpaid loans for its consumer credit unit, catering to around one million customers. This marks a nearly 70% increase compared to the previous year and accounts for almost half of the bank’s total risk provisions.

Riese noted, “People are getting poorer. Disposable incomes are falling, impacting risk provisioning.”

Historically, German bankers emphasize the stability of consumers, supported by a robust government safety net. However, the German economy unexpectedly contracted in Q2, indicating ongoing struggles within the euro zone’s largest economy.

Inflation, which surged post-COVID-19 pandemic and amid the Ukraine conflict, has started to ease. Recent data revealed German inflation fell more than expected in August, reaching its lowest level in over three years. Chancellor Olaf Scholz commented, “People have more money in their wallets again” regarding the eased inflation.

($1 = 0.9014 euros)