Reuters/Frankfurt
Germany’s HSH Nordbank expressed confidence in its capital safety buffers on Friday, but acknowledged it could still fall short in a European Central Bank (ECB) test of the state-backed lender’s ability to withstand financial shocks.
HSH, long seen as vulnerable in the ECB’s review of German lenders because of its exposure to troubled shipping loans, echoed statements from its so-called landesbank peers LBBW, BayernLB and Helaba about its readiness for the ECB tests, whose results are due in October.
“HSH Nordbank has a resilient capital base with which it is well prepared for the ECB’s Comprehensive Assessment and the related Asset Quality Review as well as the stress test,” the lender said in unveiling its half-year results.
The ECB’s review is aimed at giving it thorough insight into the risks on banks’ books before it takes over responsibility for eurozone banking supervision in November.
HSH’s Common Equity Tier 1 (CET1) ratio – a measure of its capital strength - stood at 10.0% at the end of June, excluding the effect of a loss guarantee buffer provided by its state owners, worth 2.8 percentage points.
Other landesbanks have published higher figures over the last week, with LBBW and BayernLB both reporting core capital at 14.4%, Helaba at 12.9% and NordLB, which also has shipping exposure, at 10.7%. The ECB has set 8% as a benchmark in the tests.
Landesbanks provide wholesale banking services to Germany’s 400-strong network of community-owned savings banks.
HSH also gave a more nuanced message than its peers in a section of its interim report devoted to specific risks, warning that the ECB could take a tougher line than standard accounting practice in determining the value and risk of shipping loans and other portfolios.
“It cannot be excluded in principle that the results of the AQR could lead to a purely mathematical adjustment of the CET1 capital ratio that could be below the AQR’s required ratio of 8%,” the bank said. HSH could also fall short of the 5.5% minimum in an adverse stress scenario in the ECB test, it warned.
Banks showing capital shortfalls will have six months to close them in the ECB’s basic test scenario and nine months in the adverse scenario.
“Any capital gap has to be closed, either by getting rid of risky assets or by bringing in additional capital,” HSH Chief Financial Officer Stefan Ermisch told a news conference.
A capital hole could create an extra problem in the case of HSH, in which the German city state of Hamburg and the state of Schleswig-Holstein hold an 85% stake.
