Germany's DZ Bank sees more consumers struggling to repay debts

By Tom Sims and Alexander Hübner

FRANKFURT (Reuters) -Germany's DZ Bank has turned more pessimistic about the chances of consumers repaying their debts amid rising rents and living costs, and as the economy stagnates.

CEO Cornelius Riese warned on Thursday of "overstretched" borrowers unable to pay back loans - a new concern for banks that in recent months have mainly focused on the risks of corporate defaults and the faltering commercial property sector.

DZ Bank said on Thursday that for the first half of the year it set aside 86 million euros ($95 million) in provisions to cover possible unpaid loans at a consumer credit unit that has around one million customers.

That is up by nearly 70% from a year earlier and makes up just under half of the bank's overall risk provisions in the period.

"People are getting poorer. Disposable incomes are falling. And that translates into increased risk provisioning," said Riese.

German bankers tend to stress the stability of German consumers, who benefit from a strong government safety net.

The German economy unexpectedly contracted in the second quarter after skirting a recession at the beginning of the year, showing the continuing struggles of the euro zone's biggest economy.

Inflation soared to the quickest pace in decades in the wake of the COVID-19 pandemic and the Ukraine war, but it has been easing.

German inflation fell more than expected in August, declining to its lowest level in more than three years, data showed on Thursday.

"People have more money in their wallets again," Chancellor Olaf Scholz said on social media platform X in reaction to the data.

($1 = 0.9014 euros)

(Reporting by Tom Sims and Alexander Huebner; Editing by Rachel More and Mark Potter)