Deutsche Bank estimates loan provisions to hit a record high in over a decade

Deutsche Bank (ETR: DBK) said on Wednesday that the ongoing Coronavirus pandemic is expected to fuel an unparalleled increase in loan losses this year. The bank said that it will be setting aside £712.68 million to cover for credit losses in the current quarter. This money, as per Deutsche Bank, marks the highest it has set aside for loan loss provisions since the aftermath of the market crash in 2008.

Shares of the lender posted an about 2.5% increase in premarket trading on Wednesday. In 2020, Deutsche Bank is so far the best performer in the league of European bank stocks. Learn more about stocks and the stock market.

Deutsche Bank has lower exposure to the worst-hit borrowers

Experts’ forecast for a rise in credit losses was capped at £561.24 million for the ongoing quarter. While the bank anticipates a stronger than expected hit in Q2, CEO Christian Sewing expressed confidence in its higher lending standards. He also commented that the bank’s exposure to worst-hit borrowers is comparatively lower than its peers. Deutsche Bank also said on Wednesday that its EMEA CEO is scheduled to step down in the upcoming months.

Deutsche Bank is also benefitting from Germany’s extensive state-backed loan guarantee programs aimed at cushioning the economic blow from COVID-19.

As per the lender’s full-year guidance, its provisions will lie in the range of 35-45 basis points of its total loans. Provisions, Deutsche bank added, will start contracting in the next quarter. In comparison, Deutsche’s annual guidance for provisions is roughly twice as much as its French competitor, Societe Generale SA, is likely to set aside.

Deutsche sets aside £1.60 billion to cover for the loan losses in 2020

For the full-year, the largest German lender has set aside £1.60 billion to cover for the rising loan losses. Sewing also said on Wednesday that the lender’s liquidity position and capital buffers are sufficiently strong to survive the pandemic. His guidance for revenue in Q2 from trading securities was also reported hawkish. Analysts, on the other hand, anticipate Deutsche Bank to record its 6^th consecutive year of loss in 2020.  

According to CFO James von Moltke, Deutsche concluded the first quarter with a CET 1 (common equity tier 1) ratio of 12.8%. He also warned that the ratio can be expected to drop below the bank’s set minimum of 12.5% in Q2. Deutsche Bank released its Q1 financial results in the last week of April.

Deutsche Bank remained flat on average in the stock market in 2019. At the time of writing, it is valued at £16.04 billion.