DBRS Morningstar Confirms 365 Members of Sparkassen-Finanzgruppe’s Institutional Protection Scheme at A (high), Trend Stable

Following the confirmation of the floor ratings for the Sparkassen-Finanzgruppe on 31 March 2022, DBRS Ratings GmbH (DBRS Morningstar) confirmed the Long-Term Issuer Ratings of 365 members of the Institutional Protectional Scheme (IPS) of the Sparkassen-Finanzgruppe at A (high). The Short-Term Issuer Ratings were also confirmed at R-1 (middle). The trend on all ratings remains Stable. A full list of the rating actions can be found at the end of this release. The list includes 363 Sparkassen as well as Landesbank Saar and Landesbausparkasse Saar (building association).

KEY RATING CONSIDERATIONS

The confirmation of the ratings reflects the very strong franchise of the Sparkassen which form the backbone of the Group. The Group has an aggregate balance sheet of EUR 2.4 trillion and holds significant market shares in all business segments, underscoring the Group’s importance to the German banking sector and the German economy overall. The ratings are also underpinned by good asset quality metrics benefitting from the granular loan portfolios of the Sparkassen and the de-risking within the Landesbanken sector in recent years. Capital levels are solid and liquidity is supported by the strong deposit franchise of the Sparkassen, supplemented by the covered bond franchises of the larger institutions. Offsetting these rating strengths are the relatively modest profitability when compared to international peers as well as the historically higher risk associated with the Landesbanken.

The Stable trend reflects the limited ratings upside due to near-to mid-term revenue pressures for German banks in current low interest rate environment, potentially delayed effects of the COVID-19 pandemic as well as the fallout from the war in Ukraine. It also reflects DBRS Morningstar’s current view that any deterioration in SFG’s credit metrics as a result of these developments would remain with the A (high) rating range.

The floor ratings indicate that each IPS member’s Issuer Ratings is generally rated at the floor level; however, this does not prevent members from either potentially achieving higher individual ratings based on their individual credit assessment or receiving a lower rating if there is an increased likelihood of departure from the Sparkassen-Finanzgruppe.

The floor ratings are based on the depth and resources of the IPS. In DBRS Morningstar’s view, the IPS of Sparkassen-Finanzgruppe reduces the default risk for each individual member by making financial resources available to each Group member in times of stress. However, DBRS Morningstar recognises that the IPS has limitations, as it does not amount to a legal cross-guarantee. These limitations are factored into the floor ratings.

Since March 2021 DBRS Morningstar notes that the following mergers have taken place:

• Stadtsparkasse Sprockhövel merged with Stadtsparkasse Schwelm with the resulting entity being named Sparkasse Schwelm-Sprockhövel.
• Sparkasse Mainz merged with Sparkasse Worms-Alzey-Ried with the resulting entity being named Rheinhessen Sparkasse.
• Kreissparkasse Augsburg merged with Sparkasse Memmingen-Lindau-Mindelheim with the resulting entity being named Sparkasse Schwaben-Bodensee.
• Sparkasse Ennepetal-Breckerfeld merged with Sparkasse Gevelsberg-Wetter with the resulting entity being named Sparkasse an Ennepe und Ruhr.

As a result of the mergers the ratings of four savings banks were discontinued-withdrawn. These were Stadtsparkasse Sprockhövel, Sparkasse Mainz, Kreissparkasse Augsburg, Sparkasse Ennepetal-Breckerfeld. In addition, the following four savings banks have changed their names to reflect the mergers: Stadtsparkasse Schwelm to Sparkasse Schwelm-Sprockhövel, Sparkasse Worms-Alzey-Ried to Rheinhessen Sparkasse, Sparkasse Memmingen-Lindau-Mindelheim to Sparkasse Schwaben-Bodenseeand Sparkasse Gevelsberg-Wetter to Sparkasse an Ennepe und Ruhr.

RATING DRIVERS

Given the floor rating approach, the ratings will generally move in line with those of the Sparkassen-Finanzgruppe.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (19 July 2021) https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021) https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings

The sources of information used for this rating include Morningstar Inc. and Company Documents, Sparkassen-Finanzgruppe 2016-2020 Annual Reports, Bilanzpressekonferenz der Sparkassen 2022 DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar 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 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/394676.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Sonja Förster, Vice President - Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of European FIG - Global FIG
Initial Rating Date: January 18, 2007
Last Rating Date: March 18, 2021

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