Germany’s Savings Banks use comprehensive, state-of-the-art instruments and processes to measure and manage all major risks arising from banking business and market conditions. Additionally, risks are monitored group-wide within the framework of the Savings Banks Finance Group’s Institutional Protection Scheme.
Savings Banks are fully exposed to market forces. They operate according to commercial principles and their survival depends on their intrinsic capacity to generate adequate profits to fund their business operations. However, in order to maintain consistent services for their clients, Savings Banks do not strive for short-term profit maximisation, as this may produce high risks in the long term.
Since Savings Banks operate locally, they also have extensive knowledge of their local customers. This provides a thorough awareness of the risks involved in extending a loan to a specific customer. It is a depth of knowledge that can rarely be found in remote corporate headquarters.
The Savings Banks legislation that applies in Germany’s federal states limits the scope of Savings Banks’ engagement in certain high-risk business transactions from the very start.
Savings Banks have a very broad customer base, which includes larger SMEs as well as the businesses of craftsmen and the self-employed. Lending business with these customer groups is essential for Savings Banks. Their internal customer ratings provide validated information on loan loss probability.
The internal rating of business customers includes not only key financial ratios, but also more than 20 qualitative factors, such as sound succession planning and information on the quality of business controlling. Savings Banks possess a database of 15.7 million ratings of their business customers and this number is growing every year. On this basis, the Group’s rating methods are fine-tuned on an ongoing basis.
A second pillar of the Savings Banks’ internal risk management is their detailed knowledge of regional and national trends in specific sectors. The sector forecasts of the Savings Banks Finance Group, which are updated quarterly are based on around 300,000 annual corporate balance sheets. This data resource is unique in Germany in terms of its depth and history.
Financial institutions will be required to address the sustainability risks of borrowers in their corporate customer business. In anticipation of this, the Savings Banks have already implemented the Savings Banks ESG score (S-ESG score) as a model for all institutions, which can be used to identify and analyse potential risks.
The quantitative ESG risk measure can be applied equally to all sectors of the economy and has two major advantages: On the one hand, it can be used to quickly gain an initial impression of the extent of sustainability risks in an industry and, on the other hand, it enables a simple direct comparison between different industries – for example as part of portfolio management.
The use of the sector-based S-ESG score is particularly useful and efficient in the retail business.
A list of suitable indicators were identified for the ESG score, which are specifically weighted and assigned to the three areas of environment, social affairs and good governance. The results from the areas are determined regularly and then summarised to form the S-ESG score, which thus describes the current extent of the sustainability risks of all the industries covered.
With the ESG score model, Savings Banks can also determine the individual sustainability score of their business clients. On this basis, realistic fututre strategies and viable investment plans can be developed.
The Savings Banks Finance Group has received separate capital market ratings for Savings Banks, Landesbanken and regional building societies (Landesbausparkassen). These ratings confirm the good credit standing of the Savings Banks and underline the importance of the cooperation within the Savings Banks Finance Group.
Most Savings Banks have received individual ratings by Fitch and / or DBRS based on the Group ratings.
The positive ratings by all three agencies reflect the stable business model and very strong domestic retail and SME business resulting in a leading market share position in Germany, high asset quality and strong and stable capitalisation, funding and liquidity position, as well as the healthy profitability of the Savings Banks Finance Group.
Many Landesbanken are active in the capital market and have received their own issuer ratings in addition to the Group ratings shown in the table below.
In October 2024, Deutsche Leasing was also rated by Fitch. Fitch was the first rating agency to assign an issuer rating to Deutsche Leasing. The long-term rating of A+ (stable outlook) is at the level of the Savings Banks Finance Group. The same applies to Deutsche Factoring Bank GmbH & Co. KG, which is part of the Deutsche Leasing Group.
Rating agency Moody’s has also assigned Deutsche Leasing an issuer rating for the first time. In December 2024 it awarded the company an A2 (stable outlook) long-term issuer rating.
The Savings Banks Finance Group operates its own deposit guarantee scheme, the Institutional Protection Scheme. The Group’s Institutional Protection Scheme has a number of particular strengths:
Most importantly, the Group’s Institutional Protection Scheme is designed to safeguard not only customer deposits in full, but also the solvency and liquidity of its member institutions.
When a Savings Bank requires support, it has recourse firstly to the regional subfund, i.e. the neighbouring Savings Banks. If these resources are not sufficient, the Group’s supraregional funds will be used. However, the primary task of the Institutional Protection Scheme is not to coordinate support cases, but to prevent them from arising in the first place.
This has proved its strength. Since the establishment of the Institutional Protection Scheme in the 1970s, no member institution has ever defaulted. In the Savings Banks Finance Group, no customers have lost any of their deposits or interest.
The Institutional Protection Scheme has a stabilising effect on the German banking market, ensuring that smaller institutions such as Savings Banks provide for their own protection and that their broad range of services will be maintained nationwide. From an economic perspective, this is a highly efficient form of protection.
Moreover, the Institutional Protection Scheme of the Savings Banks Finance Group is officially recognised as a deposit guarantee scheme under the German Deposit Guarantee Act (Einlagensicherungsgesetz, “EinSiG”). Under a statutory deposit guarantee scheme, customers are entitled to compensation of up to EUR 100,000, as stipulated in the German Deposit Guarantee Act.
The protection schemes’ decentralised structure and the interdependence of liability (assessment and monitoring) ensure a high level of mutual responsibility and corresponding risk mitigation.
