In the euro area, NPL ratios stood at low or manageable levels prior to the crisis. At the same time, the NPL problem has deep structural reasons that were further amplified with the start of the financial and economic crisis.
According to Bundesbank estimates, real estate prices exceed levels that would be justified by fundamentals such as regional or demographic patterns by about 15–30%. Let me therefore give you a more detailed description of the vulnerabilities lurking in Germany’s financial system. 2 Underestimating credit risk Future credit risk might be underestimated.