Moody’s lowered Deutsche Postbank’s rating from A1 to A2 on Friday on concerns about tail risks associated with large non-core asset exposures, and limited capital generation capacity and moderate capitalisation.

The cut to its long term senior debt rating was prompted by a lowering of Moody’s standalone credit assessment from baa3 to ba1, within the D+ standalone bank financial strength rating (BSFR) category.

The rating agency cited increased risks of asset quality deterioration due to three factors: the bank’s large investment securities portfolio, which includes comparatively large exposures to European peripheral sovereign debt, which equates to most of the bank’s Tier 1 capital base; its still sizeable non-core asset exposures from structured credits; and continued asset quality deterioration in its internationally diversified commercial real estate exposures.

Moody’s said that, when combined with Postbank’s still weak overall capital generation capacity and moderate capitalisation, and a relatively high leverage ratio of 24 times, these factors render the bank vulnerable to tail risks and unexpected losses in a stressed economic environment.

Mitigating factors cited by the rating agency included: Postbank’s recurring and relatively stable core earnings capacity; its robust liquidity and funding structure; and Moody’s assessment of a very high probability of parental support from Deutsche Bank following a recent domination agreement.

The outlook on the rating is stable.