BayernLB confident of capital in ECB stress tests

German public-sector lender BayernLB said it was confident of passing European Central Bank health checks in the coming weeks, as doubts linger about some other landesbanks. "For us, neither the asset quality review, nor the stress tests will have a big effect," BayernLB Chief Executive Johannes-Joerg Riegler told a conference call on Thursday after unveiling the lender's results for the first half of the year.
BayernLB's common equity tier 1 (CET1) ratio, a measure of its financial strength, edged down to 14.4 percent at the end of June from 14.6 percent at the end of March, compared with an ECB benchmark of 8 percent. Germany's landesbanks, which provide wholesale banking services to the country's 400-strong array of local savings banks, have worked hard to cut costs and rid themselves of wobbly assets acquired before the financial crisis.
They have also rejigged their business models to focus on financing German companies and real estate and improving service to savings banks. BayernLB said it was well positioned for the stress tests, the results of which are due to be unveiled in October and which have prompted other banks to raise capital. "We are comfortably positioned, and based on what we know today, we assume there will be no exigencies of any sort," Riegler said.
The ECB is expected to take a hard line when reviewing lenders' exposures to business areas such as shipping loans, an area where BayernLB's peers HSH Nordbank and NordLB are seen as vulnerable. "It's hard to say what the impact will be on the (other) landesbanks," Riegler said of the tests. "You'll have to ask my colleagues."
Germany's Voeb banking association, which represents public sector lenders, has predicted that none of the landesbanks will encounter problems with the stress tests, pointing out that in addition to building up capital, the lenders have trimmed their risk positions by nearly 60 percent. BayernLB has freed itself of a major worry by selling loss-making banking subsidiary MKB to the Hungarian government, although it said on Thursday the sale would push the BayernLB group to a net loss for the full year.
Credit rating agency Fitch said the sale announced in late July was a positive step in cleaning up BayernLB's legacy portfolio but that concerns remained over future capital strength. "While BayernLB's capitalisation currently ranks favourably among peers, it is uncertain what level of CET1 ratio BayernLB will be able to achieve in the medium- to long-term," Fitch said in a report last week.