Banks now hardier but will be upping the cost of borrowing

The banking sector is now much more resilient to crises than it was before the collapse of Lehman Brothers in the US in 2008, Berlin Hyp’s head of international real estate finance Assem El Alami told Real Asset Insight.

However, speaking to RAI’s Richard Betts recently, El Alami that bank financing will become more expensive, even setting aside rising interest rates. “The margin that we will ask in future funding will probably more be more expensive for the simple fact that we have to factor in the economic environment.

“There will be more risk-weighted assets eaten up by downgrades because of the deterioration of market values and thus we will need to sell our assets more expensively and that will result in rising margins.”

He is expecting declines in property value to lead to loan-to-value ratio breaches by borrowers but adds that the banking sector has the resilience to face that. “We do have to remember that when talking about LTV breaches it does not mean that we have less cash flow at our disposal, so we can work with that.”

Real estate already faced challenges before interest rates began to rise, notably the transition to net zero carbon but this also represents an opportunity to improve property values, El Alami pointed out.

“Anybody asking ‘do I want to invest into deleveraging or into ESG?’ I think those are two valid strategies,” he said.

“Investing into the ESG characteristics of the asset will probably be the more sustainable solution in order to face the challenges,” El Alami added.

Please click on the video above to watch the full interview or listen to the podcast below.