DBRS Rates 406 Members of Sparkassen-Finanzgruppe’s Institution Protection Scheme at “A”, Stable

Following the confirmation of the floor ratings for the Sparkassen-Finanzgruppe on April 12, 2016,
DBRS Ratings Limited (DBRS) has today confirmed its Long-Term Debt & Deposits ratings of “A” and Short-Term Debt & Deposits ratings of R-1 (low) for 406 members of the Institution Protection Scheme of Sparkassen-Finanzgruppe. A full list of the rating actions can be found at the end of this release. The trend on all ratings is Stable.

The floor ratings are based on the depth and resources of the Institution Protection Scheme, the additional support for the Group’s members from their public owners (Träger). The ratings also consider the underlying earnings potential and the solid franchise of the savings banks and the overall importance of the Group to the German banking sector. Offsetting these rating strengths are the riskier funding profile and weak overall earnings of several Landesbanks that are a meaningful part of the Group, and the high level of competition in the savings banks’ core business of German retail banking.

The floor ratings also consider the overall strong market positions and the solid franchises of the institutions comprising the Sparkassen-Finanzgruppe. The Group’s members maintain leading positions across many areas of German banking. DBRS sees the Group’s overall franchise strength as benefitting from the solid positioning of the savings banks, whereas the negative impact from weaker Landesbanks has diminished somewhat following meaningful de-risking and restructuring.

In DBRS’s view, the Institution Protection Scheme of Sparkassen-Finanzgruppe reduces the default risk for each individual member, because the Scheme makes financial resources available to each institution within the Group. As such, the strength and structure of the Scheme is a key factor considered in the floor ratings. The Institution Protection Scheme is designed to ensure the solvency and viability of each member, thereby protecting creditors and counterparties. Since the Scheme’s inception in 1973, no member has defaulted, an indication which DBRS views as the scheme fulfilling its function. The Sparkassen-Finanzgruppe’s Institution Protection Scheme has been officially recognised by the German regulator as a deposit guarantee scheme under the Deposit Guarantee Act.

However, DBRS recognises that the Institution Protection Scheme has limitations, as it does not amount to a legal cross-guarantee. Moreover, while the combined resources of the Institution Protection Scheme have enabled it to cope with most stress scenarios, resources may be insufficient in a wider systemic crisis.

These limitations are factored into the floor ratings.

Notes:
All figures are in EUR (euros) unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (December 2015). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2016), DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2016).These can be found can be found at: http://www.dbrs.com/about/methodologies
The sources of information used for this rating include SNL Financial and company reports. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.
DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.
Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance
For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Peter Burbank
Rating Committee Chair: William Schwartz
Initial Rating Date: January 18, 2007
Most Recent Rating Update: April 12, 2016

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