Bundesbank warns of rising risks for German banks from loans, AI valuations and property funds

Warning on rising risks

The Deutsche Bundesbank presented its Financial Stability Report 2026 in Frankfurt on 12 November 2026 and concluded that risks to the German financial system have grown compared with earlier years. Michael Theurer, the board member responsible for financial stability, said that several areas are now judged more worrying than a year ago. The central bank still describes the German financial system as resilient, but it is operating against a backdrop of geopolitical tension. Theurer said German lenders are well capitalised and have enough equity, and he presented the findings with this message:

“The risks to financial stability remain elevated.”

Bad loans and insolvencies

The share of problem loans has risen since mid-2025, the Bundesbank said, and company insolvencies are at a level not seen for years. Monthly insolvencies have recently climbed to their highest level since 2014. Companies in distress often cut staff, which makes it harder for employees to keep up with loan repayments, and the strain passes on to the banks that financed those firms. Theurer said lenders can still absorb the burden and urged them to set aside provisions in case more loans default.

“So far, credit risks are fortunately materialising in an orderly way.”

Theurer added that the direction is clear, because persistent economic weakness and structural pressure on companies are increasingly reaching the banks.

AI valuations and cyber threats

Theurer described valuations in financial markets as ambitious, especially in the US technology sector. He warned that prices could fall sharply if high profit expectations are not met or if geopolitical tensions intensify. He pointed to the AI hype around listed companies, noting that stock markets have climbed from record to record and that corrections are a real risk. In the worst case, he said, shockwaves could reach the global financial system. He also called the mix of high and still rising public debt in the euro area with weak growth 'toxic'. Cyberattacks are becoming more aggressive and, with the help of artificial intelligence, faster and more powerful. Theurer said a disrupted payment system or stolen customer data would be dangerous, and he asked banks to close security gaps as quickly as possible.

Property funds and commercial real estate

Outflows from German open-ended real estate funds have increased since mid-2023, and some funds have had to suspend redemptions or restrict them. In late October, DWS, the asset management arm of Deutsche Bank, capped redemptions from its open-ended fund 'grundbesitz europa' at 10 percent after rising withdrawals threatened its liquidity. These funds struggle because they cannot quickly sell buildings to pay out investors when cash runs short. The Bundesbank describes the commercial property market as strained, with low transaction volume and a continuing risk of price declines, which it partly links to high interest rates. It warns that forced sales could weigh further on the market. The central bank also cautioned that price growth since 2024, which it called moderately positive, should not be read as a sign of a broad-based recovery.

Shadow banks and loan-financed homes

The Bundesbank sees higher risks in shadow banks, meaning finance companies such as funds or insurers that offer bank-like products without being banks. Problems in property funds are one reason for that assessment. Recent data cited by the central bank show that residential property purchases, which made up nearly 40 percent of newly granted loan volume, were almost entirely financed by credit. If borrowers who lose their jobs can no longer pay, the risk for banks is far larger.