Moody’s upgraded the mortgage and public sector Pfandbriefe of NordLB to Aaa on Friday, as well as outstanding NordLB Luxembourg CBB issuance, as the German bank was upgraded amid a slew of positive Landesbank and other S-Finanzgruppe-related rating actions.

The bank and covered bond rating actions come after Moody’s on 9 February placed the ratings of several members of Sparkassen-Finanzgruppe (S-Finanzgruppe) on review for upgrade, reflecting a potential change in Moody’s assessment of the likelihood of member banks receiving direct or indirect support via the group’s institutional protection scheme (IPS) on the back of updates to IPS statutes early this year that the rating agency said strengthen the support mechanism.

On Friday, NordLB’s senior unsecured rating was lifted from A3 to Aa2, while its long term counterparty risk assessment (CRA) was raised from A3(cr) to Aa2(cr). Its Adjusted BCA (baseline credit assessment) was upped from ba1 to a3, reflecting the S-Finanzgruppe changes, meaning rating uplift from affiliate support improved from two to five notches.

NordLB’s BCA was meanwhile raised from ba3 to ba2, with Moody’s citing “the bank’s resilience in its improved combined solvency profile despite the headwinds from a deteriorated operating environment in Germany”. The BCA also takes into account the bank’s elevated market funding dependence and incorporates a one notch negative corporate behaviour adjustment, the rating agency noted.

NordLB’s mortgage and public sector covered bonds were upgraded from Aa1 to Aaa, with the covered bond anchor now being Aa1 – the bank’s CR assessment plus one notch. The public sector and renewable energy covered bonds of NordLB Luxembourg Covered Bond Bank were upgraded from Aa2 to Aaa, with the Luxembourg entity sharing the same CR assessment and CB anchor as the German issuer.

BayernLB, DekaBank, Helaba, Landesbank Baden-Württemberg and Landesbank Saar were among financial institutions enjoying similar upgrades at the issuer level. The banks’ senior unsecured ratings and CRAs were upgraded from Aa3 to Aa2 and Aa3 (cr) to Aa2 (cr), respectively, on the back of the S-Finanzgruppe changes.

BayernLB’s BCA was upped from baa2 to baa1, and Landesbank Saar’s from ba1 to baa3, while DekaBank’s, Helaba’s and LBBW’s were affirmed at baa2.

The upgrades are a welcome fillip for the sector against the backdrop of commercial real estate-related headlines – just the day before its rating actions, Moody’s published a report noting the high exposure of some German banks to the US CRE market relative to their capital levels, highlighting some Landesbanks alongside specialised lenders.

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