August 28, 2014 / 2:55 PM / 3 years ago

UPDATE 1-German landesbanks LBBW, NordLB say ready for stress tests

* Landesbanks say they are well prepared for tests

* LBBW core capital 14.4 pct, NordLB at 10.7 pct

* ECB/EBA bank health check results due in Oct. (Adds company quotes, context)

By Jonathan Gould and Andreas Kröner

FRANKFURT, Aug 28 (Reuters) - German regional state-backed landesbank lenders LBBW and NordLB said they had thick cushions of loss-absorbing capital in place to comfortably meet EU-wide health checks of the banking sector.

The two lenders said on Thursday their double-digit Common Equity Tier 1 (CET1) ratios, a measure of capital strength, gave them confidence they were ready for the examination, echoing nearly identical statements from landesbanks BayernLB and Helaba over the past week.

“We are well prepared for the upcoming stress tests,” LBBW Chief Executive Hans-Joerg Vetter said in a statement.

The review of asset quality and the stress tests by the European Central Bank and the European Banking Authority are aimed at giving regulators insight into the state of the banks’ books before the ECB takes over responsibility for banking supervision in the euro area in November.

Germany’s landesbanks, which provide wholesale banking services to its around 400 local savings banks, have worked to cut costs and rid themselves of wobbly assets acquired before the financial crisis.

The Voeb banking association, which represents public-sector lenders, has predicted that none of the landesbanks will encounter problems in the stress tests, pointing out that in addition to building up capital, the lenders have trimmed their risk positions by nearly 60 percent since the financial crisis.

Exam results are due in October and could lead to substantial capital raising by any bank that fails. That could be a problem for the publicly owned landesbanks, because a capital top-up by their owners could prompt state-aid investigations from EU competition authorities in Brussels.


LBBW reported a rise in its core capital ratio rose to 14.4 percent at the end of June from 13.1 percent at the end of December, well above an ECB benchmark of 8 percent.

NordLB, which seen as facing a tougher time in the exercise because of its heavy exposure to the troubled ship financing business, was more guarded on Thursday.

“We will not participate in speculation about the outcome of the stress tests, but we feel we are well prepared for them,” a NordLB spokesman said.

“We are relaxed about October,” he added.

NordLB’s CET1 ratio stood at 10.7 percent at the end of June, up from 10.3 percent at the end of December.

Credit rating agency Fitch last month said NordLB had a more diversified stream of income sources and strong performance in its core business, which could help absorb further pressure from its shipping loan book.

NordLB on Thursday said it had added to its risk buffers for shipping loans in the first half of the year, bringing them to 1.7 billion euros ($2.2 billion) on a shipping loan book of 16 billion euros.

“We will stay alert and continue to build risk provisions,” NordLB Chief Executive Gunter Dunkel said in a statement, adding that the environment for shipping remained difficult and that the bank would be dealing with it for some time to come.

HSH Nordbank, another major player in the ship financing business, is due to report first-half results on Friday. The landesbank has said repeatedly it is well prepared for the stress tests.

Fitch in its review said HSH’s business model still needed to demonstrate its long-term viability.

“The viability rating reflects low legacy asset quality and significantly higher exposure to the most risky parts of ship financing compared with its peers,” Fitch said.

1 US dollar = 0.7596 euro Editing by Maria Sheahan and Jane Baird

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