Ratings Affirmed On All Members Of The German Cooperative Banking Sector; Outlook Stable

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1 Research Update: Ratings Affirmed On All Members Of The German Cooperative Banking Sector; Outlook Stable Primary Credit Analysts: Salla von Steinaecker, Frankfurt (49) ; Dirk Heise, Frankfurt (49) ; Secondary Contact: Harm Semder, Frankfurt (49) ; Table Of Contents Overview Rating Action Rationale Outlook Related Criteria And Research Ratings List OCTOBER 20, Standard & Poor's. All rights reserved. No reprint or dissemination without Standard & Poor s permission. See Terms of Use/Disclaimer on the last page

2 Research Update: Ratings Affirmed On All Members Of The German Cooperative Banking Sector; Outlook Stable Overview We expect that the German cooperative banking sector will maintain its strong franchise in German retail banking, a strong and stable deposit inflow, and sizable surplus liquidity. We are affirming our 'AA-/A-1+' ratings on the approximately 1,100 local banks and other core members of the sector and our 'A+/A-1' ratings on highly strategic members of the group. We have updated our assessments of the stand-alone credit profiles (SACPs) of WL BANK AG Westfaelische Landschaft Bodenkreditbank and Deutsche Apotheker- und Aerztebank eg, although this does not affect the issuer credit ratings. The stable outlook on all entities in the sector reflects our expectation that the solidarity support within the sector will remain unchanged. Rating Action On Oct. 20, 2014, Standard & Poor's Ratings Services affirmed its 'AA-/A-1+' long- and short-term counterparty credit ratings on the core group members of Germany's cooperative banking sector ("genossenschaftliche FinanzGruppe"), including its main central bank, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, the health care sector specialist Deutsche Apotheker- und Aerztebank eg (Apobank), and the sector's residential real estate financier WL BANK AG Westfaelische Landschaft Bodenkreditbank (WL BANK). At the same time, we affirmed our 'A+/A-1' counterparty credit ratings on the cooperative banking sector's highly strategic group members Deutsche Genossenschafts-Hypothekenbank AG and DVB Bank SE. The outlooks are stable. Rationale The affirmations reflect our expectation that the group will maintain its strong franchise, owing to its No. 2 market position in German retail banking. We expect that it will maintain a strong, stable deposit inflow and sizable surplus liquidity generated from local cooperative banks. Moreover, we anticipate that the group will continue to improve its strong capitalization from high earnings retention. We forecast that it will increase its aggregate risk-adjusted capital (RAC) ratio to above 12.0% by 2015, from 11.6% at OCTOBER 20,

3 Research Update: Ratings Affirmed On All Members Of The German Cooperative Banking Sector; Outlook Stable year-end We have updated our assessments of the stand-alone credit profiles (SACPs) of WL BANK and Apobank, owing to improvements in their capitalization. However, this has no impact on our counterparty credit ratings on either bank or on our issue ratings on the banks' senior or subordinated debt. This is because the ratings depend on the banks' core status in the group. In our view, these banks would very likely benefit from the sector's solidarity support and comprehensive protection scheme. We have revised our assessment of WL BANK's SACP to 'bbb-' from 'bb+' because we consider that its capital and earnings position has improved to moderate from weak levels, according to our criteria. This stems from our expectation that WL BANK's RAC ratio will gradually improve to between 5.0% and 5.5% by 2016, compared with 5.0% as of year-end 2013 and 4.8% at year-end We base this forecast on our expectation that the buildup of total adjusted capital will modestly exceed the growth of risk-weighted assets, and that the bank will continue to reduce exposures to higher-risk sovereigns in its securities portfolio. Although our SACP assessment for Apobank is unchanged at 'bbb+', we now assess its capital and earnings as adequate compared with moderate previously. This is because we project its RAC ratio will be at 7.5%-8.0% over the coming months, reflecting the bank's somewhat improved stand-alone capitalization, complete divestment of structured credit investments that led to the reinstatement of the sector's guarantee in May 2014, and strict focus on core competencies. Overall, however, we see no meaningful improvement in the bank's capacity to absorb unexpected losses. We have reflected this by lowering our assessment of Apobank's risk position to moderate from adequate. While Apobank has a market-leading franchise in the German health care sector and solid asset quality and lending across a number of asset classes, we consider its exposures to be narrowly focused on a single sector. Outlook The stable outlook on the core and highly strategic group members of Germany's cooperative banking sector reflects our expectation that the ratings on these entities are unlikely to change over the next one to two years. It also reflects our opinion that the solidarity support within the sector, including the protection scheme administered by the National Association of German Cooperative Banks (Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.v.), will also remain unchanged. Although we currently anticipate a weakening of economic and financial market conditions globally, we believe that the sector's key credit metrics should remain more resilient than, and superior to, the average for the German banking industry. We consider positive or negative rating actions unlikely at present because they would require more fundamental changes to the sector's strengths or weaknesses or to economic and industry risk in Germany. A heightening of OCTOBER 20,

4 Research Update: Ratings Affirmed On All Members Of The German Cooperative Banking Sector; Outlook Stable economic risk in Germany, gradual erosion of the sector's market position, deterioration of the sector's aggregate RAC ratio to lower than 10%, or a strategic shift of the sector into higher-risk areas could have negative rating implications. Conversely, the successful execution of a holistic strategy to address the sector's traditional weaknesses, such as cost efficiency and a below-average market position in corporate and private banking, could have positive rating implications. Related Criteria And Research Related Criteria Bank Hybrid Capital And Nondeferrable Subordinated Debt Methodology And Assumptions, Sept. 18, 2014 Group Rating Methodology, Nov. 19, 2013 Revised Market Risk Charges For Banks In Our Risk-Adjusted Capital Framework, June 22, 2012 Banks: Rating Methodology And Assumptions, Nov. 9, 2011 Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 Bank Capital Methodology And Assumptions, Dec. 6, 2010 Use Of CreditWatch And Outlooks, Sept. 14, 2009 Related Research Banking Industry Country Risk Assessment: Germany, July 29, 2014 Ratings List Ratings Affirmed Cooperative Banking Sector Germany* DZ BANK AG Deutsche Zentral-Genossenschaftsbank DZ Bank Ireland PLC DZ PRIVATBANK S.A. Deutsche Genossenschafts-Hypothekenbank AG DVB Bank SE R+V Versicherung AG KRAVAG-LOGISTIC Versicherungs AG Deutsche Apotheker- und Aerztebank eg WL BANK AG Westfaelische Landschaft Bodenkreditbank A+/Stable/A-1 A+/Stable/A-1 AA-/Stable/-- *The Cooperative Banking Sector Germany includes around 1,100 local banks. Additional Contact: Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com Complete ratings information is available to subscribers of RatingsDirect at OCTOBER 20,

5 Research Update: Ratings Affirmed On All Members Of The German Cooperative Banking Sector; Outlook Stable and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) ; London Press Office (44) ; Paris (33) ; Frankfurt (49) ; Stockholm (46) ; or Moscow 7 (495) OCTOBER 20,

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