The sale of WestLB's commercial real estate finance unit WestImmo has come to a standstill after German banking association BdB reportedly refused to allow WestImmo into its deposit insurance fund.

According to an article on Thursday in German daily Financial Times Deutschland, the refusal represents a major hurdle in WestLB's quest to sell the unit to New York private equity group Apollo Global Management.

Until now, deposits have received insurance coverage from a public fund. Without this, WestImmo could have trouble raising funds on the capital markets and as a result Apollo may no longer be interested in the company, which it had hoped to turn into a European real estate funding platform.

The European Commission originally set a mid-February deadline for WestLB to divest WestImmo in exchange for public sector subsidies during the global financial crisis. This date has repeatedly been extended and is now slated for mid-2012.

If the sale to Apollo falls through, Westimmo will likely be liquidated inWestLB's bad bank.