DBRS: Increasing Risks for Small and Medium-Sized German Banks despite Stress Tests Pass

A Bundesbank/BaFin stress test on small and medium-sized German banks and savings banks indicates that these banks are relatively well positioned to withstand a severe economic downturn. Nevertheless, accompanying surveys highlight the banks’ ongoing profitability challenges and risks from recent growth in real estate lending.

Key highlights from DBRS’ commentary discussing the conclusions of the stress test:
• Smaller German banks are relatively well positioned to withstand a severe economic downturn.
• Banks appear overly optimistic in their planning regarding the potential for higher interest rates, but an increasing number are intending to pass on negative rates to commercial customers.
• DBRS sees risks from banks’ continued expansion of real estate lending and supports the call for more standardised data collection on real estate.

“On aggregate the stress test shows a 3.5 percentage point decline of banks common equity tier 1 capital ratios in a severe economic downturn. This is well above regulatory capital levels. However, real estate lending and loosening of corporate loan standards is an increasing concern.” said Sonja Förster from DBRS’ EU Financial Institutions team.

This commentary “DBRS: Increasing Risks for Small and Medium-Sized German Banks despite Stress Tests Pass” is available at www.dbrs.com.