Germany’s federal state banks, or Landesbanken, are insulated from disruption in funding markets, Fitch Ratings said in a July report.
The lenders are part of the Sparkassen-Finanzgruppe’s (SFG) institutional protection scheme (IPS). The membership of the IPS supports their funding and liquidity. The savings banks in the SFG have substantial excess liquidity from their large share of stable retail customer deposits, a part of which they tend to place at the Landesbanken.
Moreover, the Landesbanken typically generate up to 50% of their unsecured funding through the SFG savings banks and their customers, according to the rating agency. Placement capacity has been good even when debt markets have been volatile.
The Landesbanken’s liquidity at the end of 2022 was strong. The liquidity coverage ratio was 163% for BayernLB, 144% for Landesbank Baden Wurttemberg and 223% for Helaba Landesbank.
More generally, Landesbanken present good asset quality and capital levels and lower risk appetite. Foreign exposures and risky capital market bets got the Landesbanken into trouble during the 2008 financial crisis. Nowadays, they have significantly reduced their capital market risk and offloaded most of their bad debt.
