German Stress Test for Smaller Banks: Banks Remain Well Capitalised

The commentary analyses the recently published German stress test for small and medium-sized banks.

• The Bundesbank and the German Federal Supervisory Authority (BaFin) published the results of the 2022 stress test for small and medium-sized banks and savings banks (less significant institutions, LSIs) on 28 September. The surveys included 1,299 banks and 17 building societies (Bausparkassen), covering 91% of credit institutions and 45% of system-wide assets.

• In addition to the stress test the supervising authorities also surveyed the banks’ own 5-year planning as well as the banks’ projections under certain interest rate scenarios. The survey also included questions regarding cyber and climate risks. The stress test scenario reduced banks’ aggregate CET1 ratios by 3.2 percentage points to 14.5% after three years, thus on average banks remain well capitalised.

"The current rate increases should alleviate revenue pressure and, along with the banks’ solid capital base, help them withstand the economic downturn." said Sonja Förster, Vice President from the DBRS Morningstar Global Financial Institutions team. "Banks expect to further increase their investments in cyber security, while climate risk is not considered a major risk factor."