Anticipated First Wave of Credit Defaults in Early 2021, According to Bafin

In the wake of the ongoing Corona crisis, Germany's financial watchdog, BaFin, is expressing concerns about several fronts. Particularly, the financing of aircraft has become a point of focus, as the value of these assets has significantly decreased due to the crisis and many are no longer needed. BaFin is especially worried about significant institutions like major banks and leasing companies involved in aircraft financing, due to the potential impact of the COVID-19 crisis on this sector.

Meanwhile, BaFin chief Felix Hufeld has voiced concerns about the long-term situation of employees working from home, particularly in the financial sector. He deems compromises in IT security and compliance issues as unacceptable, given the sensitive nature of the work. The return of traders to banks, he believes, depends on the course of the pandemic.

Working from home, however, presents its own set of challenges. Home IT systems are often more vulnerable to hacker attacks, and traders are harder to control. These risks, coupled with the need for stringent compliance and security measures, make remote work a complex issue for the financial sector.

A photo of bank high-rises, taken by dts Nachrichtenagentur, provides a visual representation of Germany's banking sector. While the photo does not provide any specific information about the current status or condition of the banks, it serves as a reminder of the sector's importance and scale. It is important to note that the photo does not indicate any direct connection to the potential loan defaults or working from home issues.

BaFin is also focusing on scenario analyses for particularly affected segments of credit portfolios, especially at significant institutions. The first wave of loan defaults is linked to the full reinstatement of the insolvency application requirement. However, several waves of loan defaults for Germany's banks are expected, potentially starting in early 2021.

Many investment bankers in Germany are currently working from home due to the pandemic. As the situation evolves, it will be interesting to see how the financial sector adapts and navigates these challenges, ensuring the security and stability of the industry while enabling remote work.