DBRS Assigns A (high)/R-1 (middle) Floor Rating to Germany’s Sparkassen-Finanzgruppe

Dominion Bond Rating Service (DBRS) has today assigned A (high) long-term and R-1 (middle) short-term floor ratings for all members of Germany’s Haftungsverbund (joint liability scheme) of the Sparkassen-Finanzgruppe (Savings Banks Finance Group, SBFG), all with a Stable trend.

DBRS notes that the floor rating reflects the existence of a support mechanism with a sound track record, the strong cohesion among Sparkassen (savings banks) and the developing integration of Landesbanken (regional central banks) in the regional savings banks groups which in combination reduces the probability of default among members of the Haftungsverbund at the federal level. The floor rating is the minimum rating for all members, and is underpinned by (1) the acceptable credit strength of the majority of savings banks, (2) the structure, strength and depth of the joint liability scheme and (3) the relatively stable and sound risk-return profile of the combined group of Sparkassen, Landesbanken and Landesbausparkassen (building and loan associations).

“Another factor which determines the floor rating of SBFG is the expected support coming from German states for their respective Landesbank,” comments Michael Dawson-Kropf, Senior Vice President and lead analyst for Sparkassen-Finanzgruppe.

Beneficiaries of the floor rating include 461 Sparkassen, 11 Landesbanken, DekaBank (the national central bank and mutual fund manager) and 11 Landesbausparkassen, as well as some smaller financial institutions that are members in the joint liability scheme. On a combined basis, these institutions constitute the largest banking group in Europe with total assets of more than EUR2.5 trillion at the end of 2005.

Commenting on rating-change drivers, DBRS notes that Sparkassen-Finanzgruppe’s credit strength would benefit if the group successfully exploits in a more cohesive and co-ordinated fashion its strategic potential and opportunities for cross-selling, outsourcing and co-operation. However, an upgrade of the A (high)/R-1 (middle) floor ratings would be challenging given the current group structure and the inherent nature of a floor rating (versus a group rating).

Conversely, the floor ratings could be negatively affected by a dilution of cohesion among member banks and weakening financial fundamentals, especially if savings banks allow an erosion of their strong foothold on the German retail banking market.

The Sparkassen-Finanzgruppe is represented by the Deutscher Sparkassen-und Giroverband, headquartered in Berlin, Germany.