European Central Bank publishes asset quality review results for LBS Süd and Wüstenrot showing no capital shortfalls

The European Central Bank published the results of asset quality reviews (AQRs) of LBS Landesbausparkasse Süd and Wüstenrot Bausparkasse AG after classifying both building societies as significant because their total assets exceeded EUR 30 billion. The exercises focused on credit risk and resulted in reductions to reported Common Equity Tier 1 (CET1) ratios, but the AQR-adjusted CET1 ratios remained above the banks’ capital requirements. The AQRs implied CET1 ratio depletion of 137 basis points for LBS Süd and 98 basis points for Wüstenrot, taking CET1 from 17.43% to 16.06% and from 17.69% to 16.71%, respectively. Most of the impact reflected a finding that credit risk was recognised only once a loan was granted, rather than at least from the point when a client becomes eligible for a loan under a “Bauspar” contract, contributing 109 basis points of the depletion for LBS Süd and 64 basis points for Wüstenrot; the remainder stemmed from credit file review findings, including additional provisioning needs. The results will feed into ongoing supervision and the Supervisory Review and Evaluation Process, with supervisory measures expected to address identified weaknesses. The ECB has directly supervised Wüstenrot since 1 January 2024 and LBS Süd since 1 January 2025, and it expects both banks to follow up on the AQR outcomes.