ECB raises Deutsche Bank's prudential capital requirements

German financial services group Deutsche Bank has been asked by the European Central Bank (ECB) to maintain higher capital. The development comes as the Eurozone banking regulator pushes banks to reduce the risks they face in the leveraged finance business. The new prudential capital requirements took effect on 1 January 2023.

"The increase is driven by the ECB's newly introduced separate assessment of risks stemming from leveraged finance activities," the lender said in a statement. Specifically, the German bank will be required, on a consolidated basis, to maintain a Common Equity Tier 1 (CET 1) capital ratio of at least 10.55% compared to 10.43% as of 30 September 2022.

Deutsche Bank AG confirmed it faces a higher capital requirement as its main regulator pushes lenders to dial back the risks they face in the lucrative business of leveraged finance. The German lender must hold common equity Tier 1 capital equivalent to 10.55% of its risk-weighted assets this year, up from 10.43% at the end of September, it said in a statement on Friday after market close. The firm already exceeds the requirement by a wide margin, with a ratio of 13.33% at the end of the third quarter. "The increase is driven by the ECB's newly introduced separate assessment of risks stemming from leveraged finance activities," Deutsche Bank said.

Bloomberg reported in November that the German bank and BNP Paribas SA were among lenders facing rising capital charges related to leveraged loans. The ECB has said some lenders aren't properly grasping the risks they face in that business, which involves financing highly-indebted companies, such as those acquired by private equity firms. Deutsche Bank Chief Executive Officer Christian Sewing has pushed back, saying his firm doesn't need warnings from its regulator to contain the risk it faces in leveraged loans.

In November this year, Bloomberg reported that Deutsche Bank and its French peer BNP Paribas were among the bank facing increased capital requirements related to leveraged loans.