Commerzbank to Make Provision For at Least Half of Soviet Loans

Commerzbank, Germany's third-largest, plans to take a loss provision for more than half of its $560 million in loans to the Soviet Union, the bank's chairman said on Thursday.

The move by $135 billion-asset Commerzbank follows the announcement on Wednesday by the Soviet foreign trade bank, Vneshekonombank, that it is suspending payments of loan principal to private lenders.

German Exposure Is High

The halt came as a surprise to some banks, but was in line with a similar freeze on sovereign debt payments that Moscow imposed on the Group of Seven industrialized nations - the United States, Canada, Japan, France, Italy, Britain and Germany - last month.

German banks have been big lenders to the crumbling Soviet Union, holding about 25% the estimated $20 billion in loans worldwide that are not backed by government guarantees. U.S. banks have been relatively minor players: As a group, they hold less than $500 million in uninsured Soviet credits, analysts estimate.

"We will arrange for a yearend loan-loss provision that exceeds 50%, although no [Soviet] loans are overdue," said Martin Kohlhaussen, Commerzbank's chairman and chief executive officer.

"We don't have a problem," he quickly added, citing the fact that after loss provisions, only 2.1% of the bank's $4 billion in lending to "problem countries" will be nonperforming.

The the move by Vneshekonombank to freeze principal payments does not necessarily auger a debt restructuring, Mr. Kohlhaussen said, despite the fact Deutsche Bank is forming a steering committee to review the Soviet debt problem.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.