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Almost 1 in 20 smaller German banks fail national stress test

[FRANKFURT] Almost 5 per cent of small and medium-sized German banks missed regulatory capital requirements in a stress test conducted by Germany's two top financial watchdogs. 

The impact of the simulation carried out by the Bundesbank and BaFin would have been higher if the stress test had factored in contagion effects, Bundesbank board member Andreas Dombret said at a press conference in Frankfurt.

He presented the results of the survey of about 1,500 banks together with Raimund Roeseler, executive director for banking supervision at BaFin.

"The stress test shows that the banks should very carefully assess how well they are prepared to cope with the risks" identified in the survey, Mr Dombret said.

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"The message of our survey and our stress test to banks and savings banks is: those who want to safeguard vitality in the long run should make preparations."

German banks have long suffered from comparatively low profitability in a fragmented market that has been exacerbated by low - and sometimes negative - interest rates.

The banks said in the survey that they expect their profit before tax to fall by 9 per cent over the next five years.

The stress test applied by the financial watchdogs simulated different scenarios, including what would happen to bank balance sheets if the ECB raised the benchmark interest rate by 200 basis points.

In this scenario, which Mr Roeseler said was very unlikely, 68 of the surveyed banks would fall short of the capital requirements set by regulators.

"We know who those 68 banks are and that's why we're quite relaxed sitting here," Mr Roeseler said.

BLOOMBERG