We assign A3(stable)/P-2 deposit and senior unsecured debt ratings to Deutsche Hypothekenbank (Actien-Gesellschaft) (Deutsche Hypo). We also assign a Baseline Credit Assessment (BCA) of ba3 and an Adjusted BCA of ba1 to Deutsche Hypo.

Deutsche Hypo's ratings reflect its ba3 BCA, two notches of rating uplift from affiliate-backing by its sole owner, Norddeutsche Landesbank GZ (NORD/LB, A3 stable/A3 stable, ba3¹), and its membership in the institutional protection scheme of Sparkassen-Finanzgruppe (S-Finanzgruppe, Aa2 negative, a2²), the result of the application of our Loss Given Failure (LGF) analysis and its inclusion in the resolution perimeter of NORD/LB, as well as one notch of government support because of Deutsche Hypo's membership in systemically relevant S-Finanzgruppe.

Deutsche Hypo's ba3 BCA is capped at the level of the BCA of its parent NORD/LB, reflecting the close interlinks between the two banks. The bank's BCA also takes into account sound asset quality, high leverage and modest earnings capacity of Deutsche Hypo. In addition, the bank's BCA remains constrained by its monoline business model, resulting from high concentration in the commercial real estate lending, and limited earnings diversification.