Negative outlook for German banks

Frankfurt am Main: Ratings agency Moody´s on Thursday slashed its outlook for German banks from "stable" to "negative", warning their profitability and creditworthiness would "decline" in the coming months.

"Banks´ weak profitability will decline further as net interest income falls" amid low or negative interest rates set by the European Central Bank, Moody´s vice-president Bernhard Held said in a statement.

While banks must for now set aside little cash to cover the risk of borrowers falling behind on payments, such charges are "unsustainably low", he judged. Especially smaller banks that rely on customers´ deposits for their funding are seeing profits sapped by low rates, which have prompted many bosses to blast the ECB for the policy.

Also Thursday, Bundesbank (central bank) vice-president Claudia Buch warned German lenders´ "vulnerability has gradually grown" to credit risks, as she presented the institution´s annual financial stability report. Banks could have underestimated future lending risks and overvalued assets like property, presenting dangers in case of an economic downturn, she said.