German banks healthier than expected: Bundesbank

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German banks are setting aside less than expected in risk provisions, the country's central bank said Thursday, saying that the banking sector in Europe's top economy was healthier than thought.

Risk provisions at German banks dropped to 23 billion euros (32 billion dollars) in 2010 from 37 billion euros last year, according to the Bundesbank's annual report on the banking system.

"The situation of the German credit economy is better than it was one or even two years ago. And it is better than expected," said Franz-Christoph Zeitler, the vice-president of the central bank.

"There is no indication that German credit institutes are not in a position to help the economic upswing in Germany by providing sufficient credit," he added.

Nevertheless, risks remain and Bundesbank board member Andreas Dombret cautioned that the debt crisis in Europe "would keep us busy for some time."

"Vulnerabilities and structural weaknesses continue to exist in the German banking system," added Dombret, pointing to the country's struggling regional banks known as Landesbanken.

German banks need to "develop sustainable business models," he added, amid calls for a consolidation in Germany's large and fragmented banking sector.

There are, however, no signs of a credit crunch in Germany, the Bundesbank said in its report.

© 2010 AFP

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