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Gas shortage risks ‘unforeseeable consequences’ for Germany, warns Commerzbank

A severe shortage of natural gas supplies could trigger a “chain reaction with unforeseeable consequences” for the German economy, warned Commerzbank, one of the country’s largest corporate lenders.

Germany’s central bank warned on Wednesday of a “severe recession” in the country if Russia cut off gas supplies, saying it could trigger an economic crisis similar to “the crisis that occurred after the 2009 financial crisis.”

Commerzbank He added that gas rationing would then be “probably inevitable”.

Germany’s banks are especially exposed to the huge increase in gas prices caused by Russia’s move last month to sharply reduce supplies. Before the Russian invasion of Ukraine, Germany imported 55% of its natural gas from Russia, but the supply through the Nord Stream 1 pipeline dropped to a fifth of its capacity And policymakers fear they could be cut entirely.

The German government is Preparing for gas rationing in the winter and is frantically trying to find other sources, to encourage energy saving and to fill the gas reservoir in Israel.

Commerzbank said the impact of the shortage will spread rapidly through the countries The German economy Because natural gas is not only an essential source of energy but also an important raw material used in other industries.

The bank stated that the chemicals and plastics industry constitutes 1.1% of its credit exposure. Other sectors that are highly exposed to potential gas supply shortages and rising energy costs – services, construction and the paper industry – contribute another 3.8% of the bank’s 384 billion euros in loans.

The lender pointed to BASF, the world’s largest chemicals company by revenue, which said the group’s huge production site in Ludwigshafen would have to close if gas supplies fell below 50%.

However, global players such as BASF can temporarily mitigate potential supply failures thanks to their plants in the Americas, Asia and less affected parts of Europe, Commerzbank added.

The warnings came as Commerzbank reported a 228 million euro hit from the economic fallout from the war in Ukraine in the second quarter.

However, the lender posted a larger-than-expected net profit in the period, as higher interest rates and increased fee income boosted quarterly revenue by 30% to 2.4 billion euros. Net profit in the quarter was 470 million euros, compared to a loss of 527 million euros the previous year. Analysts on average expected a profit of 370 million euros, according to a survey published by the bank.

Anke Rheingen, an analyst at RBS Capital Markets, said that while the bank’s results were positive, “the gas outlook remains a material overweight” for the lender.

Commerzbank’s loan level in the quarter increased by 8.9% to 1.53 billion euros, and it expects a 700 million euro hit from provisions for loan losses for the entire year.

The group said it was on track to meet its 2022 profit target of more than 1 billion euros in Germany be able to avoid recession triggered by a lack of gas.

“We are well equipped for the challenges ahead,” said Chief Financial Officer Bettina Orlop. The bank’s common equity ratio, an essential measure of the strength of its balance sheet, increased by 13.7%, compared to 13.5% in the first quarter.

Gas shortage risks ‘unforeseeable consequences’ for Germany, warns Commerzbank Source link Gas shortage risks ‘unforeseeable consequences’ for Germany, warns Commerzbank

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