Moody's Raises Outlook on German Banking System to Stable

Moody’s Investors Service increased its outlook on Germany’s banking system for the first time since 2008, saying lenders have raised capital buffers and their losses from the crisis are abating.

The upgrade to stable from negative “recognizes that following a year of reduced crisis-related losses and improved capital strength, German banks are now more able to withstand an adverse market environment,” Moody’s said in a statement today. “Capital levels will further strengthen, even though asset quality will deteriorate mildly over the next 12 to 18 months as banks work through their stock of impaired legacy investments.”

Germany has joined countries around the world in ordering banks to bolster capital to avoid a repeat of the taxpayer-funded rescues of lenders following the 2008 collapse of Lehman Brothers Holdings Inc. The likelihood of governments stepping in to save banks is decreasing as policy makers seek ways to wind down failed lenders, according to Moody’s.

Still, “Moody’s forecasts a deterioration both in earnings and in efficiency for the German banking system during the 2013 to 2014 outlook period as low interest rates and overcapacities continue to pressure profit margins,” it said.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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