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Jürgen Gießler, General Manager Bausparkasse Schwäbisch Hall AG Germany

The Cooperative Banking Sector in Germany Session on Capital for Mutuals and Cooperatives in the United Kingdom and beyond London, 4 November 2010. Jürgen Gießler, General Manager Bausparkasse Schwäbisch Hall AG Germany. Agenda.

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Jürgen Gießler, General Manager Bausparkasse Schwäbisch Hall AG Germany

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  1. The Cooperative Banking Sector in GermanySession on Capital for Mutuals and Cooperatives in the United Kingdom and beyondLondon, 4 November 2010 Jürgen Gießler, General Manager Bausparkasse Schwäbisch Hall AGGermany

  2. Agenda 1) The German Banking Market - Overview - The Cooperative Financial Sector - The Home Savings and Loan System 2) Main changes due to Basel III 3) Conclusions

  3. 1) The German Banking Market- Overview The Three-PillarBanking System Regional focus Domestic market share* 25% 39% << 10% (each) Banking sector Private banking sector Cooperative banking sector 2 central institutions: DZ BANK Group and WGZ BANK-Group, 1,156 local coop. banks Public banking sector 8 Landesbank groups (incl. DekaBank)431 savings banks *Market share according to deposits of private households end of 2009 Source: DZ BANK Group, October 2010

  4. Central Cooperative Bank, Commercial Bank, Strategic Holding Central Cooperative Bankfor North-Rhine Westphalia Mortgage Bank Leasing Home Savings and Loan Company Asset Management Insurance Mortgage Bank Mortgage Bank Consumer Credit 1) The German Banking Market- The Cooperative Financial Sector Source: Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (National Association of German Cooperative Banks), October 2010

  5. 1) The German Banking Market- The Cooperative Financial Sector Facts and figures • 1,156 local and regional banks, autonomous in a legal and economic sense • 13,571 bank outlets • 16.4 million members nationwide • approx. 160,000 employees • aggregate balance-sheet total: 690 billion euros Source: Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (National Association of German Cooperative Banks), October 2010

  6. 1) The German Banking Market- The Cooperative Financial Sector Characteristics • Universal banks offering a complete range of products for retail customers and SME’s • Structure of capital finance • cooperative shares • liability of members: limited to double the amount of the signed cooperative shares • Limited engagement for individuals • Regional principle • Risk situation balanced via two Central Banks Source: Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (National Association of German Cooperative Banks), October 2010

  7. 1)The German Banking Market- The Cooperative Financial Sector Raising capital • members • retained profits • cooperative banks as shareholders • raisingmarketcapital • retained profits • central banks as shareholders • retained profits Cooperative banks Central banks Specialist group institutions

  8. AssetManagementInvestmentFunds AssetManagementCertificates Leasing ConsumerCredit Market positionin Germany Home Savings and Loans Insurance 1) The German Banking Market- The Cooperative Financial Sector Market positions Source: DZ BANK Company Profile, October 2010

  9. 1) The German Banking Market- The Home Savings and Loan System How does the HSL system work? 2) Loan phase= repayment of loan Deposit:fixed interest Start End Loan:fixed interest t 1) Savings phase= creation of wealth HSL is an important contribution to home financing • HSL deposit (and own resources) • HSL mortgage (subordinate mortgage or second charge) Allocation: the total sum (deposit + loan) is disbursed • Front-ranking mortgage or first charge Source: DZ BANK – Meeting with Paul Volcker, New York, 8 October 2010

  10. 1) The German Banking Market- The Home Savings and Loan System § § A legally secured system According to Law, HSL companies are specialized credit institutions What are the reasons? What are the benefits? - Closed system - Special know-how of HSL and - HSL-specific criteria needed for it - No distorted competition between banks and HSL companies - Protection of the HSL customer by regulations

  11. 1) The German Banking Market- The Home Savings and Loan System GERMANY BSH-Group has … … nearly 80 years of experience in the market for home savings and loans … more than 6.7 million customers in Germany (8 percent of the German population) … a total contractual sum of 215 billion euros (£190 billion) … a market share of 28 percent ABROAD BSH-Group has … … successfully introduced HSL to five countries outside Germany … contributed to increasing home-ownership ratios in these countries … enhanced the stability of the market for housing finance in these regions … more than 3.4 million HSL customers outside Germany Bausparkasse Schwäbisch Hall-Group (BSH-Group) is market leader in Germany and Europe Source: DZ BANK – Meeting with Paul Volcker, New York, 8 October 2010

  12. 2) Main Changes due to Basel III- Regulatory Capital • Requirement to increase the regulatory capital • Tier 1 Capital: • Divided intoCore Tier 1(Common Equity) andNon Core Tier 1(Hybrid capital) • strengthening the requirements towards the core capital and introducing the minimum level “Core Tier 1” • Core Tier 1 has to form the predominant part of the entire Tier 1 Capital  effects on the possible extent of the hybrid capital • introducing a supplementary capital buffer • Tier 2 Capital: • subordinate to deposits and general outside capital • minimum original term of 5 years • only paid-in capital

  13. 2) Main Changes due to Basel III- Effects on the Cooperative Banks The new Basel III regulations also apply to non-plc’s,i.e. for Cooperative Banks, too Special features of the cooperative legal structure Tier 2 Tier 1 Business assets (paid-in capital) are accepted as hard core capital under certain conditions: An approved additional and guaranteed reserve liability is vital: Same capital quality as equity share with reference to loss absorption and with refer-ence to going-concern principle in case of crisis Same capital quality is doubtful, as supple-ment to the reserve liability will only meet the criterion of deposit after the crisis scenario. Approval of Tier 1 Capital is enough for most Cooperative banks

  14. 2) Main Changes due to Basel III- Effects on the Specialist Group Institutions • Capitalization of Specialist Group institutions • Tier 1 mainly by share capital and capital reserves via Cooperative banks (directly and indirectly) • Partly fund-raising via capital market (hybrid capital) • Status quo: solid capital basis which meets the Basel III requirements • The Tier 1 ratio of Bausparkasse Schwäbisch Hall (> 20%) lies significantly above the future required ratio, i.e. 7% (Tier 1 + capital buffer)

  15. 3) Conclusions (I) Source: DZ BANK, December 2008, Bausparkasse Schwäbisch Hall 2010

  16. 3) Conclusions (II) Source: DZ BANK, December 2008, Bausparkasse Schwäbisch Hall 2010

  17. Jürgen GießlerGeneral ManagerBausparkasse Schwäbisch Hall AGCrailsheimer Straße 5274523 Schwäbisch HallGermany • +49 791 46-3625 • juergen.giessler@schwaebisch-hall.de Thank you very much for your attention

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