Risk-bearing capacity

Rentenbank’s risk-bearing capacity concept is the central element of its Internal Capital Adequacy Assessment Process (ICAAP) and the basis for the operational implementation of its risk strategy. The objectives of the risk-bearing capacity concept are to ensure the continuation of the Bank as a going concern in order to fulfil its promotional mandate in compliance with the regulatory requirements, to ensure the long-term preservation of the Bank’s capital, and to protect creditors against economic losses. These objectives are reflected in the two perspectives of the Bank’s risk-bearing capacity concept, which encompasses a Normative Approach and an Economic Approach. The risk management processes are designed to fulfil these objectives and requirements equally. The monitoring of limits within the risk-bearing capacity concept is supplemented with stress tests, which are reported to the Management Board and discussed there and in the Risk Committee on a regular basis.

Normative Approach

The managerial objective of the Normative Approach is to fulfil all regulatory minimum capital requirements and standards. For this purpose, the Bank determines whether the Bank’s capital resources are sufficient to ensure compliance with all regulatory requirements and thus the continuation of the Bank as a going concern, in the base scenario and in the adverse scenarios, both as of the reporting date and over the period covered by the multi-year (five-year) capital plan. The capital resources should also make it possible for the Bank to sustainably pursue its business strategy under these scenarios.

The Bank’s regulatory own funds under the Normative Approach at the reporting date and in comparison with the corresponding prior-year figures is presented in the table below:

	31/12/2024 mEUR	31/12/2023 mEUR
Subscribedcapital	135.0	135.0
Retained earnings	1,233.6	1,215.1
Fund for general banking risks	3,479.8	3,395.0
Intangible assets	- 48.4	- 39.1
Tier 2 capital	0.0	0.7
Regulatory own funds	4,800.0	4,706.7

The increase in own funds compared to the previous year resulted mainly from profit retention in the previous year. The eligibility of Tier 2 capital expired in 2024.

Risk exposures and risk-weighted assets (RWAs) are presented in the table below:

	31/12/2024 mEUR	31/12/2023 mEUR
Credit default risk	11,454.8	13,967.3
CVA charge	530.5	541.9
Operational risik	544.3	536.5
Total RWAs	12,529.6	15,045.7

The considerably lower RWAs resulted mainly from upgrades of external ratings of business partners with high business volumes, but also from the lower volume of special promotional loans. The combination of these effects led to much higher capital ratios in 2024. For information purposes, moreover, the plan values for the following three years from the base scenario applied in the capital plan are presented in the table below. The first-time application of the CRR III as of 2025 is expected to have negative effects on the capital ratios. However, the capital ratios will still be well above the minimum regulatory requirements:

 

	Reporting Date	Base Scenario
	31/12/2024	2025	2026	2027
Total capital ratio in %	38.3	28.6	29.5	29.7
Tier 1 capital ratio in %	38.3	28.6	29.5	29.7
CET 1 capital ratio in %	38.3	28.6	29.5	29.7
Leverage ratio in %	10.2	11.2	11.4	11.7

The various geopolitical crisis situations and the mild recession in Germany had no observable material effects on Rentenbank’s key risk indicators in 2024. Under the base scenario considered for capital planning purposes, a continuation of the conflicts and a decrease in inflation accompanied by a modest economic recovery are assumed. In the base scenario, therefore, Rentenbank anticipates a stable development of its portfolio from a risk perspective. This is reflected in the capital ratios.

The regulatory requirements are fulfilled as of the reporting date and at all times considered in the base scenario of the capital plan.

In addition to the base scenario, various adverse scenarios involving seriously negative market-wide and institution-specific developments are analysed for capital planning purposes. Even considering the CRR III effects, all regulatory requirements will be met at all times.

Economic Approach

The objectives of the Economic Approach are to ensure the long-term preservation of the Bank’s capital and protect creditors against economic losses. For this purpose, the economic capital is checked against the total risk exposure and assessed both as of the reporting date and in the base scenario of the capital plan.

Economic capital includes undisclosed reserves and liabilities from securities and promissory note bonds of the German federal states, including their hedges, as well as the reserves pursuant to HGB 340f. Interim profits or losses (during the year) are included, while planned and not yet realised profits are not included.

The economic capital applied in the Economic Approach is presented as of the reporting date and in the previous year in the table below:

	31/12/2024 mEUR	31/12/2023 mEUR
Subscribed capital	135.0	135.0
Retained earnings	1,252.6	1,233.6
Fund for general banking risks	3,553.5	3,479.8
Undisclosed liabilities/ reserves	211.1	706.8
Economic capital	5,152.2	5,555.2

 

The planned utilisation of profit from 2024 is included in economic capital. The significant decrease in economic capital in 2024 resulted from a methodological conversion under which additional items were included in Undisclosed liabilities/reserves, as well as somewhat higher credit spreads.

Under the Economic Approach, risks in all positions are considered independently of their accounting treatment. Risks are calculated at a confidence level of 99.9% and for a time period of one year. The risk exposures of the individual risk types are aggregated without regard to diversification effects. They break down as follows:

	Risk Exposure 31/12/2024 mEUR	Risk Exposure 31/12/2023 mEUR
Credit default risk	470.5	392.9
Market price risk	1,826.6	1,453.1
of which interest rate risks	558.6	543.5
of which CVA risk from derivatives	39.6	65.1
of which spread and other risks	1,213.4	829.5
of which risk buffer	15.0	15.0
Non-financial risks	93.1	102.1
of which operational risks	62.1	74.1
of which strategic risks	31.0	28.0
Total risk	2,390.2	1,948.1

 

Rentenbank’s risk-bearing capacity under the Economic Approach was assured at each observation date in 2024. All limits were kept. The utilisation of economic capital at the reporting date was 46.39%, considerably higher than in the previous year (35.07%), due to the lower amount of economic capital and the corresponding increase in exposures from the measurement of credit spread risks and a corresponding increase in migration risks within credit default risks.

Stress tests

The objective of the stress tests is to analyse whether Rentenbank’s risk-bearing capacity would also be assured in unusual, but plausible scenarios affecting different risk types. For this purpose, a hypothetical scenario (economic downturn and further rise in inflation) and an historical scenario (financial markets crisis and ensuing sovereign debt crisis) are simulated. Market-wide and institution-specific aspects are considered in these scenarios. The main risk parameters applied in the stress scenarios are credit rating deterioration, changes in interest rates, and a widening of credit spreads. The effects of the stress scenarios are analysed from the normative and economic perspectives. Under the Normative Approach, the effects of the scenarios on the income statement and equity and particularly also on risk-weighted assets are simulated over a time period of three years. The dominant risk under the Normative Approach is credit default risk; under the Economic Approach, credit default risk and market risk are particularly relevant.

Under both approaches, Rentenbank’s risk-bearing capacity is assured also in the stress scenarios without the use of regulatory reliefs from capital and liquidity requirements, thus confirming the Bank’s comfortable capital situation.

In addition to these stress scenarios, the Bank also conducts an inverse stress test to identify those events that would cause the Bank’s risk-bearing capacity to be no longer assured. The Bank also analyses the impact of sustainability risks under different scenarios (see separate section).