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Erscheinung:01.03.2016 David Zacharias, BaFin

Bausparkassen according to the German Bausparkassen Act: Revisions to the Act and the Regulation

The German Bausparkassen Act (BausparkassengesetzBausparkG) and the German Bausparkassen Regulation (Bausparkassen-VerordnungBausparkV) were comprehensively revised at the end of 2015. The “principle of speciality” for Bausparkassen was retained. Within this framework, however, the revisions have resulted in a large number of amendments and new requirements.

For example, the responsibilities for supervising Bausparkassen were aligned with the European rules, in particular the Single Supervisory Mechanism Regulation (SSM Regulation), the management of collective risk was revised and new requirements were introduced that are designed to safeguard and strengthen the financial performance of Bausparkassen.

Bausparkassen are now permitted to conduct business that they were previously prohibited from doing. Under certain conditions, for example, they may issue mortgage Pfandbriefe and, starting in 2017, they may also invest their distributable funds in equities to a limited extent.

Bauspar business and the “principle of speciality”

Bausparkassen are credit institutions, whose business objective is to accept Bauspar deposits (Bauspareinlagen) from Bauspar customers (Bausparer) and to grant Bauspar loans (Bauspardarlehen) from these aggregate savings to Bauspar customers for residential economic measures. Only Bausparkassen are authorized to conduct this aforementioned Bauspar business (Bauspargeschäft). Apart from the Bauspar business, they may only conduct certain other transactions related to residential business (“principle of speciality”). All Bauspar customers of a Bausparkasse are members of a special-purpose savings collective (Kollektiv).

A changed environment

The environment for Bausparkassen has changed since the last comprehensive revision of the German Bausparkassen Act at the end of 1990. The latest revision is designed to reflect the need for amendments that has hereby arisen.

First, there have been significant changes in the legal basis for supervising Bausparkassen, in particular as a result of amendments to the German Banking Act (KreditwesengesetzKWG ) and of two new European regulations: the Capital Requirements Regulation (CRR) and the SSM Regulation.

The past 25 years have also seen Bausparkassen being increasingly integrated into group structures. This brings with it a fundamental risk that outsiders could influence the risk management of Bausparkassen and could be motivated by interests that run counter to those of the special-purpose savings collective.

Finally, the persistently low level of interest rates on the capital markets poses new challenges for Bausparkassen and is currently negatively impacting their income. It is not possible to predict at the moment how long interest rates will remain so low.

Credit business

In accordance with the German Bausparkassen Act , as amended by the Amending Act of 21 December 2015, under certain conditions Bausparkassen may now also use the allocation assets to grant other building loans. The permitted aggregate limit for other building loans was increased from 75 to 100 per cent of the Bauspar, prefinancing and bridging loans. According to the explanatory memorandum , this gives Bausparkassen the opportunity to grant other building loans to a greater extent than previously permitted. This could positively impact their financial performance.

Allocation assets, types of loan
The allocation assets consists of the Bauspar deposits, the funds that have been added for granting Bauspar loans and the technical security reserve (Fonds zur bauspartechnischen Absicherung), net of the aggregate amount of Bauspar loans granted. In accordance with section 6 (1) of the German Bausparkassen Act, they may only be used for a specific purpose. The Bausparkasse can for example generally only use them for its Bauspar business and to repay borrowings that were added to the allocation assets. The use of the allocation assets only for a specific purpose is designed to protect the members of the special-purpose savings collective against the Bausparkassen using the allocation assets for other transactions that they are permitted to conduct in addition to the actual Bauspar business.
Bausparkassen are permitted to grant the following loans:
Bauspar loans,
loans that are used for prefinancing or bridge financing of performances by the Bausparkasse on Bauspar contracts of its Bauspar customers (prefinancing and bridging loans), and
other loans for residential economic measures (other building loans).

Bausparkassen can now make loans up to the mortgage lending value to finance owner-occupied residential property. Previously, the lending limit was 80 per cent of the mortgage lending value. When financing other residential economic measures, however, Bausparkassen can, in principle, still only lend up to 80 per cent of the mortgage lending value.

Lending
As a general principle, Bausparkassen have to collateralise receivables from Bauspar loans, prefinancing and bridging loans, and other building loans by creating mortgages or land charges on pledged property in Germany, such as land. The value of the pledged property assumed for such lending (mortgage lending value) may not exceed its market value. Only the perpetual characteristics of the pledged property and the income that the pledged property can generate sustainably for any owner as a result of proper management may be taken into account when determining the mortgage lending value.

According to the report by the Bundestag Finance Committee (only available in German), the amendment is designed to extend the opportunities for Bausparkassen to finance owner-occupied residential property. It could also create incentives for greater take-up of Bauspar loans. The lending limit is also being increased in order to allow Bausparkassen to strengthen their core business.

Pfandbrief business

Bausparkassen can now issue mortgage Pfandbriefe for specific purposes in accordance with the German Pfandbrief Act (PfandbriefgesetzPfandBG), in particular to grant loans for residential economic measures. This is something they were previously prohibited from doing.

This is designed to give Bausparkassen a relatively economical option to obtain funding. Under the German Bausparkassen Act, they may only obtain funding for certain purposes, such as granting loans for residential economic measures. To do this, for example, Bausparkassen can fund themselves by borrowing funds from banks or other lenders, or by issuing other debt instruments.

Technical security reserve

The previous revision of the German Bausparkassen Act in 1990 established the “technical security reserve” (Fonds zur bauspartechnischen Absicherung). This is an off-line item that all Bausparkassen must establish under certain conditions in order to protect the interests of the Bauspar customers. As previously defined, it served to ensure that Bauspar loans could be allocated sufficiently quickly also in times when collective liquidity was scarce because of a lack of new Bauspar deposits.

In its new guise, the reserve no longer only safeguards that the waiting times between the start of the Bauspar contract and its allocation are guaranteed to be uniform and as short as possible, but also safeguards the collective induced interest spread that is required to ensure the sustainable operation of the Bauspar business.

The technical security reserve can thus now also be used by Bausparkassen to safeguard the collective induced income. According to the explanatory memorandum, this expansion in the purpose of the technical security reserve is designed to enable Bausparkassen to use it to offset negative effects on income in the current low interest rate environment.

Allocation and the collective induced interest spread
Allocation means the provision of the Bauspar account balance and the Bauspar loan from the allocation assets once the contractually agreed conditions for allocation have been met.
The collective induced interest spread is the ratio of the collective induced interest surplus to the annual average balance of Bauspar deposits. The collective induced interest surplus is the total income from Bauspar loans plus income from Bauspar deposits not invested in Bauspar loans, less the interest expense on Bauspar deposits.

Investments

Starting on 1 January 2017, Bausparkassen can also use distributable funds to invest in equities – something they were previously prohibited from doing. Investments in equities are limited to a maximum of five per cent of the allocation assets, and a maximum of 0.2 per cent of the allocation assets may be invested in the shares of any one company. These amounts also include indirect investments in equities through investment fund units.

According to the report by the Finance Committee, this is designed to improve the opportunities for Bausparkassen to diversify the investment of their distributable funds. It also states that the statutory caps on investing in equities are aimed at limiting the risk of losses and cluster risks.

Other changes

The revision of the German Bausparkassen Act has seen other changes as well. For example, the responsibilities for supervising Bausparkassen were aligned with EU rules.

In addition, the requirements specific to the Bauspar business that a company must satisfy before the supervisory authority can grant it permission to operate the Bauspar business were expanded. The revision also contains new rules for risk management specific to the Bauspar business. In particular, Bausparkassen now have to use simulation models specifically for the Bauspar business and must have them validated by an auditor. A new feature is that certain control agreements under which a Bausparkasse is the controlled entity – meaning that it is subject to management by another person – are expressly prohibited. In addition, the reporting requirement in the form of collective management reports that was previously standard administrative practice is now explicitly codified in law. Other new rules relate to the resolution of Bausparkassen in line with the particular characteristics of the Bauspar business.

In order to settle claims under occupational retirement schemes, Bausparkassen can assign assets that serve exclusively to settle liabilities from post-employment benefit obligations to a third party – for example a company in the same group. Under certain conditions, a third party with such a mandate is no longer subject from that point to the same investment restrictions as Bausparkassen. At the same time, however, the assets must be invested in the safest and most profitable way that matches the nature and duration of the post-employment benefit obligations. The investments must be suitably spread and diversified, and there must be safeguards to ensure that sufficient liquidity is available to settle the liabilities. According to the report by the Finance Committee, this is designed in particular to enable Bausparkassen to participate in group occupational retirement solutions that provide for types of investment that go beyond the list of investments permitted for Bausparkassen. They would offer Bausparkassen an opportunity to leverage synergy effects with a positive impact on their financial performance.

German Bausparkassen Regulation

The revision of the German Bausparkassen Act also required the German Bausparkassen Regulation to be overhauled. The superseding regulation of 29 December 2015 therefore replaced the German Bausparkassen Regulation previously in force. In particular, it contains detailed provisions on the most recent new requirements introduced by the German Bausparkassen Act.

BaFin has published the explanatory memorandum to the German Bausparkassen Regulation on its website (only available in German).

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