(The following statement was released by the rating agency)
FRANKFURT/LONDON, May 04 (Fitch) Fitch Ratings has affirmed
(SaarLB) Long-Term Issuer Default Rating (IDR) at 'A-' with a
and its Viability Rating (VR) at 'bb+'. It also affirmed the
Short-Term IDR at
'F1' and the Support Rating (SR) at '1'. A full list of rating
actions is at the
end of this Rating Action Commentary.
The rating action was taken in conjunction with Fitch's periodic
review of three
Landesbanken based in southern Germany.
KEY RATING DRIVERS
IDRS, SR AND SENIOR DEBT
SaarLB's IDRs, SR and senior debt rating are driven by strong
support from its owners, the regional state of Saarland
savings banks and ultimately Germany's savings banks group,
Finanzgruppe (SFG, A+/Stable).
Fitch's institutional support assumptions are underpinned by
contained in the statutes of SFG and the Landesbanken's
fund. Our support considerations are also based on the view that
consider their investment in SaarLB long term and strategic.
This is underpinned
by SaarLB's focus on its statutory roles, which include
economy and acting as the central institution for Saarland's
savings banks and
as house bank for the state of Saarland.
Fitch uses the lower Long-Term IDR of SaarLB's owners, SFG's
Long-Term IDR, as
anchor for determining the bank's support-driven ratings. In
support would need to be forthcoming from both SFG and the state
of Saarland to
avoid triggering state aid considerations and resolution under
Recovery and Resolution Act if SaarLB fails.
Our assessment of Saarland's creditworthiness is underpinned by
the stability of
Germany's solidarity and financial equalisation system, which
creditworthiness to that of the German sovereign (AAA/Stable).
ability is strong, but not as strong as that of Saarland.
We notch down SaarLB's Long-Term IDR twice from SFG's 'A+'
because we consider
SaarLB's role for its owners strategic, but not key and
integral, and due to
potential legal and regulatory barriers related to state aid
provisions of German resolution legislation. The Stable Outlook
support assumptions and the Stable Outlook on SFG's Long-Term
The bank's Short-Term IDR is at the higher of the two Short-Term
IDRs that map
to 'A-' on Fitch's rating scale. This reflects SaarLB's strong
links to SFG and
privileged access to SFG's ample excess liquidity and funding
SaarLB's short-term senior unsecured debt rating is equalised
SaarLB's VR primarily reflects the bank's modest capitalisation
profile, which is constrained by its concentration on the small
prosperous region of Saarland and its niche presence in
commercial real estate
(CRE) and renewables financing in France. These franchise
limitations result in
meaningful sectoral concentrations.
The bank's regulatory capital ratios improved in 2016, driven by
a reduction of
risk-weighted assets (RWA) and retention of (partly
non-recurring) earnings. The
capital buffer above regulatory minimums is sufficient, but
headroom to accommodate RWA growth or negative rating
migrations. The small
capital base is a constraining factor because it offers limited
capacity in light of the bank's concentrated loan book.
SaarLB's asset quality benefits from its exposures to highly
and financial institutions, which account for a material share
of gross credit
exposures. However, material loan concentrations constrain our
assessment despite a stable and sound non-performing loan (NPL)
CRE exposures represent about a fifth of SaarLB's non-bank
credit exposure and a
multiple of its capital. They increase the bank's vulnerability
asset performance fluctuations and account for more than half of
allowances. SaarLB also has a material exposure relative to its
capacity to key regional steel and automotive manufacturers,
which are exposed
to risks related to the economic and commodity cycle and to
SaarLB's renewables portfolio has been growing for years and by
represents a concentration risk comparable to CRE. However, its
been very robust so far. It bears tail risks stemming from
technological changes, but we do not expect existing projects to
be affected by
a revision of the current subsidy scheme. Furthermore, SaarLB
has sound and
long-standing expertise in the sector and closely follows
in its markets in France and Germany.
SaarLB has shown the ability to generate moderate but consistent
by firmer margins in its French business and the favourable
of its renewable energy portfolio. The bank's cost efficiency,
compared favourably with many of its Landebanken peers', has
driven mainly by costs related to IT modernisation.
We believe that in line with the sector SaarLB's profitability
exposed to ongoing pressure from interest rates and fixed costs,
related to regulation and digitalisation. We understand that the
launched SaarLB-2020 project will review and address the bank's
structure, segment revenues and efficiency.
SaarLB's funding and liquidity profile is adequate. Like its
it is predominantly wholesale funded. The bank's funding mix is
diversified and includes covered bonds issuance. SaarLB's
reliance on wholesale
funding is mitigated by strong and reliable funding links to
which together with other Sparkassen group members play a key
role in absorbing
SaarLB's debt placements.
DERIVATIVE COUNTERPARTY RATING AND DEPOSIT RATINGS
The bank's Derivative Counterparty Rating and Deposit Ratings
are equalised with
its IDRs. We believe the bank's buffers of junior and vanilla
senior debt do not
afford any obvious incremental probability of default benefit
over and above the
multi-notch support benefit already factored into its IDRs.
We do not apply any uplift for above-average recovery prospects
in the event of
default because of the limited visibility on recovery levels in
circumstances. In the highly unlikely event that SaarLB failed
and was not
supported by its savings banks and state owners, its balance
sheets would most
likely differ substantially from the current one.
DRS, SR, SENIOR DEBT
The IDRs, SR and senior unsecured debt ratings are sensitive to
assumptions around the propensity or ability of SaarLB's owners
timely support. This could result from a change to SFG's IDRs or
changes to the
owners' strategic commitment to SaarLB or to the bank's
importance for its home
region or the savings bank sector.
A change to our assessment of the risks of triggering a
resolution process ahead
of support for a Landesbank more generally could also affect the
bank's IDRs, SR
and senior unsecured debt ratings.
SaarLB's VR is primarily sensitive to changes in the economic or
environment that drive the performance and risk profile of its
and corporate portfolios. A material decline of capital ratios
could also put pressure on the VR.
Upward momentum for the VR would require a material improvement
capitalisation and a reduction of concentration risks. The
franchise means upside to the VR is limited.
DERIVATIVE COUNTERPARTY RATING AND DEPOSIT RATINGS
Derivative Counterparty Rating and Deposit Ratings are sensitive
to changes in
The rating actions are as follows:
Long-Term IDR: affirmed at 'A-'; Outlook Stable
Short-Term IDR: affirmed at 'F1'
Support Rating: affirmed at '1'
Viability Rating: affirmed at 'bb+'
Derivative Counterparty Rating: affirmed at 'A-'(dcr)
Deposit Ratings: affirmed at 'A-'/'F1'
Short-term senior unsecured debt: affirmed at 'F1'
Roger Schneider, CIIA
+49 69 768 076 242
Fitch Deutschland GmbH
Neue Mainzer Strasse 46-50
60311 Frankfurt am Main
Sebastian Schrimpf, CFA
+49 69 76 80 76 136
+49 69 76 80 76 123
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Additional information is available on www.fitchratings.com
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