Moody's Investors Service on Friday changed the outlook for Germany's banking system to stable from negative. It was on negative since April 2008.
The credit ratings agency believes that after a year of reduced crisis-related losses and improved capital strength, German banks are now more able to withstand shocks. The change was revealed in a report "Banking System Outlook: Germany" published today.
The improved outlook takes into account prospects of a stable operating environment due to an improving economy and benign credit environment as well as continued strengthening of the banks' capital buffers due partly to more stringent capital requirements.
The stabilizing effect of an ongoing reduction in high-risk assets and deleveraging as well as improved refinancing structures and ample liquidity buffers that imply low funding risk were also considered.
Moody's expects that economic conditions in Germany will be mildly positive and therefore supportive for German lenders.
At the same time, Moody's sees a deterioration in earnings and efficiency for the German banking system during 2013-14, as low interest rates and overcapacities continue to pressure profit margins.
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