LBBW: Germany's Weakest Landesbank in Stress Test

The LBBW has performed the weakest among German Landesbanks in the recent EU stress test, with its CET1 capital ratio declining by over 10 percentage points to 6.8%. The Helaba's CET1 ratio dropped to 7.5%, NordLB to 13.5%, and BayernLB to 14.3%. Despite the weak performance, the German banking watchdog Bafin considers the country's banks "stable" under adverse conditions.

The European Banking Authority (EBA) has released the results of its latest stress test, revealing how banks across the European Union would fare in a severe economic crisis. The test, conducted on 64 EU banks representing about 75% of the region's banking market, simulated a scenario with significant geopolitical tensions, stock market declines, and real estate value drops, among other factors [1].

According to the EBA, banks maintained robust capital buffers despite posting combined losses of €547 billion. The overall Common Equity Tier 1 (CET1) ratio, a key measure of financial strength, dropped from 15.8% to 12.1% during the crisis. However, this decline was not uniform across all banks. Deutsche Bank's CET1 ratio fell from 14.0% to 9.2%, before recovering to 10.2% by 2027. Commerzbank's ratio dropped from 15.3% to 10.5% [1].

Among the German Landesbanks, Landesbank Baden-Württemberg (LBBW) performed the weakest, with its CET1 ratio declining by over 10 percentage points to 6.8%. Landesbank Hessen-Thüringen (Helaba) ended the crisis with a CET1 ratio of 7.5%, while BayernLB and NordLB maintained ratios of 14.3% and 13.5%, respectively. DZ Bank and Volkswagen Financial Services fared significantly better, with CET1 ratios of 13.6% and 14.7%, respectively [1].

The German banking watchdog, BaFin, considers the country's banks stable under adverse conditions, despite the varying performances in the stress test. The crisis scenario, which covers the years 2025 to 2027, assumes a cumulative 6.3% decline in EU economic output, a 50% plunge in stock prices, and a nearly 30% loss in commercial real estate value [1].

References:
[1] https://www.marketscreener.com/news/stress-test-banking-regulator-says-eu-banks-prepared-for-severe-crisis-ce7c5fd3da8bf123
[2] https://www.marketscreener.com/news/popolare-di-sondrio-announces-successful-completion-of-ecb-stress-test-ce7c5fd3da8ef325