The dual cooperative protection scheme – comprising the BVR protection scheme (BVR-SE) and BVR Institutssicherung GmbH (BVR-ISG) – plays a key part in ensuring the stability of the entire Cooperative Financial Network and confidence in the creditworthiness of all its members.

Institutional protection scheme of the Cooperative Financial Network

BVR protection scheme

BVR-SE is Germany’s and the world’s oldest deposit guarantee fund for banks that is financed entirely without government support. Right from its establishment in 1934, this system has always ensured that all institutions covered by the scheme have been able to meet their financial obligations – especially toward retail customers holding deposits. BVR-SE is regulated and monitored by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) [German Federal Financial Supervisory Authority].

Since the requirement to establish a legally recognized deposit insurance scheme was introduced by the German Deposit Insurance Act (EinSiG), BVR-SE has been continued as an additional voluntary institutional protection scheme in accordance with section 2 (2) and section 61 EinSiG.

The main responsibilities of BVR-SE are to ensure stability by averting imminent financial difficulties or eliminating any such existing problems at the affiliated institutions and to prevent any negative impact on confidence in the Cooperative Financial Network. To this end, BVR-SE has established a comprehensive preventive management regime including a monitoring system and restructuring management processes. So that it can provide the necessary support in securing these aims, BVR-SE has access to a guarantee fund that is funded by contributions from the member institutions. If necessary, the institutions will also support each other with additional funding (guarantee obligations).

As can be seen from its annual report, BVR-SE was able to fulfill the responsibilities set out in its articles of association – especially its responsibilities as an institutional protection scheme – in 2025. Its work focused on restructuring management and on the early identification of institutions with a heightened risk profile.

In 2025, BVR-SE took further strides in the development of the institutional protection scheme in the context of the Geno Next Level project. The objectives of the project are earlier risk monitoring, enhanced intervention rights for BVR-SE, and contributions that are more appropriate to the level of risk. The project also focuses on drawing up a code for boards of managing directors and supervisory boards and on updating network-wide risk and financial management while maintaining decentralized responsibility at cooperative bank level.

A total of 654 institutions of the Cooperative Financial Network belonged to BVR-SE as at December 31, 2025 (December 31, 2024: 679 members). The decrease stemmed from mergers within the Cooperative Financial Network.

BVR Institutssicherung GmbH

BVR-ISG is an officially recognized deposit guarantee scheme and, since July 1, 2015, has been operating an institutional protection scheme within the meaning of article 113 (7) of Regulation (EU) No. 575/2013 for CRR credit institutions that has been approved by the regulator. By operating the institutional protection scheme, BVR-ISG satisfies its responsibility under its articles of association to avert or eliminate imminent or existing financial difficulties in its member institutions.

To this end, BVR-ISG will initiate any preventive or restructuring action as required, coordinating closely with BVR-SE. Where, in accordance with section 10 EinSiG, BaFin identifies a compensation event in relation to a CRR credit institution that is a member of the BVR-ISG protection scheme, BVR-ISG will compensate the customers of the credit institution concerned in accordance with sections 5 to 16 EinSiG. BVR-ISG thus fulfills the statutory requirements regarding deposit protection for customers.

Together, BVR-ISG and BVR-SE form the Cooperative Financial Network’s dual cooperative protection scheme. The members of the BVR-ISG protection scheme are those CRR credit institutions that also belong to the BVR, are based in Germany, and are affiliated to BVR-SE. As at December 31, 2025, the membership comprised 652 CRR credit institutions (December 31, 2024: 677).

Under section 50 (1) EinSiG, BVR-ISG is subject to supervision by BaFin and to monitoring by the Bundesrechnungshof (BRH) [German Federal Court of Audit] with regard to its responsibilities to compensate depositors in accordance with sections 5 to 16 EinSiG and with regard to funding and target funding levels in accordance with sections 17 to 19 EinSiG.

To the extent possible under EinSiG, BVR-ISG’s organizational and decision-making structures match the organizational and decision-making structures of BVR-SE. A service agreement is in place so that BVR-ISG’s day-to-day business operations can be carried out by the BVR employees who perform the relevant functions for BVR-SE. These include monitoring and assessing risks for all CRR credit institutions that are members of BVR-ISG.

The activities of BVR-ISG in 2025 related to the fulfillment of its responsibilities as defined by law, the articles of association, and regulatory requirements. These activities centered on the risk-based classification of contributions in line with the relevant guidance of the European Banking Authority (EBA), the management of funds, extensive operational stress tests, and management of the IPS recovery plan in accordance with the Regulation on the Minimum Requirements for the Design of Recovery Plans for Institutions (MaSanV). BVR-ISG can look back on a highly successful year, having not had to take any action to protect depositors or member institutions or pay any compensation in accordance with section 145 of the German Bank Recovery and Resolution Act (SAG) in 2025.

Decision-making structures and committees

The dual cooperative protection scheme has its own governance structures and dedicated committees for BVR-SE and for BVR-ISG so that it can satisfy the regulatory requirements. The organization of BVR-SE and BVR-ISG is built around an appropriate internal framework that sets out the rules regarding responsibilities, processes, procedures, and internal controls. The BVR-ISG committees were established on the basis of the committees already established for BVR-SE. Where legally permissible, they have the same responsibilities and members as this allows for efficient decision-making.

The Board of Managing Directors of the BVR and the senior management of BVR-ISG are responsible for running BVR-SE and BVR-ISG themselves and independently. There are also centralized committees and regional restructuring committees of BVR-SE and BVR-ISG that play an advisory role. Final decisions, in particular about whether to put member institutions into preventive measures or to carry out supporting measures, are made by the BVR Board of Managing Directors, taking account of the committees’ proposals in accordance with their duties pursuant to the articles of association.

Internal quality assurance system

Quality assurance should primarily focus on the fulfillment of tasks, reporting, and the underlying sources of data. The internal control system is operated as a management and monitoring system. It consists of the entire array of procedures, methods, and measures aimed at securing the proper running of operational processes.

Risk identification and analysis

Basic structures

The Cooperative Financial Network is a decentralized organization made up of legally independent institutions that are linked through the dual cooperative protection scheme in accordance with the rules in the statutes of BVR-SE and in the articles of association of BVR-ISG. This decentralized element is in sharp contrast with banking groups that have a parent company at the top of a hierarchical structure. Consequently, the power to make business decisions lies with each individual institution and its independent Board of Managing Directors and Supervisory Board. This decentralized structure determines the focus of the analytical activities of the dual cooperative protection scheme, which is primarily on overall analysis of the financial risk carriers – i.e. the institutions – rather than on isolated examination of individual risk types and their scope. This is because the risks within the decentralized structure predominantly arise in the institutions. In addition, the risks throughout the Cooperative Financial Network that are deemed relevant are considered from a network perspective. This fundamental methodological approach should ensure that, in establishing that each individual institution’s financial position and risk position are appropriate and its financial performance is adequate, the entire system – i.e. the entire Cooperative Financial Network – as a unit can be considered to be on a sound economic footing.

The dual cooperative protection scheme has systems for identifying and classifying risks and for monitoring the risks of all its members and of the institutional protection scheme as a whole. Risks are rated on the basis of BVR-SE’s classification system, which has been in use since 2003. The aim of this rating process, which is based on the annual financial statements, is to obtain an all-round, transparent view of the financial position, financial performance, and risk position of all members. Rating an individual bank in accordance with the classification system provides the basis for determining the risk-adjusted guarantee fund contributions of BVR-SE and is also the starting point for preventive management, comprising the monitoring process and ongoing support for institutions with potential issues in the form of preventive measures. The purpose of monitoring is to identify, analyze, and assess potential issues at member institutions at an early stage, so that a decision can then be made about whether to include an institution in preventive measures. Preventive measures involve providing intensive support for the institution affected by potential issues in order to eliminate the identified weaknesses and ensure that it has a strong and sustainable business model, primarily in order to avoid threats to its ability to continue as a going concern.

The results of the classification are supplemented by analysis and other available sources of data on an ongoing basis, in particular regulatory reporting data, evaluations of the data collected as part of an annual comparative analysis, and data from VR Control. This is a data pool that the BVR compiles from data collected from its member institutions and is predominantly based on information from the institutions’ accounting and reporting systems and risk management information. This data forms the basis for analyses that use key risk indicators to identify and examine specific potential issues. In addition, BVR-SE prepares special analyses on specific issues and specific risks.

In accordance with its risk-oriented mode of operation, BVR-SE performs individual bank analyses on institutions of major financial significance to the protection scheme as a whole. This includes applying the concept used to analyze large banks. In this context, BVR-SE analyzes institutions that do not show any indications of particular risk but could potentially represent a major risk simply because of the size of their balance sheet. The proportion of such institutions continues to go up, primarily due to mergers. BVR-SE thus takes into account the risks resulting from the size category of the affiliated institutions.

To assess BVR-SE’s risk-bearing capacity, probabilities of default of the BVR-SE member institutions are determined for the years ahead on the basis of the forecasts for macroeconomic parameters, and Monte Carlo simulations are used to calculate the possible costs to BVR-SE resulting from new restructuring cases.

BVR-SE classification process

The classification system uses eight key figures relating to financial position, financial performance, and risk position to assign the institutions to one of the nine credit rating categories, which range from A++ to D. The classification system is based on quantitative key figures, most of the data for which is taken from the institutions’ audited annual financial statements and audit reports. BVR-SE receives this data from the regional auditing association responsible for the individual institution.

In 2023, the BVR general meeting of members adopted changes to the key figures and to the parameterization of the classification process. These changes were applied for the first time in 2024. January 1, 2024 marked the start of a two-year transitional period regarding the method used for determining the BVR-SE guarantee fund contributions. As part of this process, the classifications based on the 2023 and 2024 annual financial statements are being calculated twice, using the legacy method and the new method. The more favorable result is used to determine the BVR-SE guarantee fund contributions.

Generally, all institutions covered by BVR-SE are included in the classification system. Only a small number of institutions are not included, notably those that are rated separately by an external rating company, e.g. the institutions in the DZ BANK Group and Münchener Hypothekenbank eG.

In 2025, the risk assessment partly drew on the classification process based on an analysis of data from the 2024 financial statements. This risk assessment was supplemented with further up-to-date information and reporting data over the course of 2025.

The classifications showed a slightly poorer distribution than in the previous year. The two key figures for financial performance derived from the annual financial statements demonstrated a generally negative trend. Net interest income edged down, whereas net fee and commission income increased modestly. With a comparable structure to that of administrative expenses, the administrative expenses ratio therefore held more or less steady year on year. A further rise in the expense for risk in the lending business had a slight negative effect on the classifications. Profit retention meant that the key figures relating to financial position made a positive contribution to the classification results, but only on a small scale. As a result of loan portfolios with heightened latent risk, the key figures relating to the risk position deteriorated compared with 2024. This had an adverse impact on the institutions’ overall results.

Classification of the BVR-ISG contributions

The contributions from the CRR credit institutions that are members of BVR-ISG are calculated on a risk-oriented basis in accordance with the BVR-ISG rules on contributions. The main structural elements and the details of the calculation methodology are drawn from EBA Guidelines EBA/2015/10, in accordance with which deposit guarantee schemes and institutional protection schemes are required to collect risk-related contributions. The EBA revised and finalized this standard in 2023, replacing it with the new Guidelines EBA/GL/2023/02. The new contribution rating requirements were applied for the first time in 2025.

Risk management and monitoring

Preventive management

The aim of preventive management at the level of the individual institutions is to identify and counteract adverse economic trends in the member institutions at an early stage, thereby helping to prevent the need for supporting measures and providing impetus for improving the financial situation of institutions in the Cooperative Financial Network. An analysis is carried out of the available data from the individual institutions and other information in order to identify institutions with potential issues. Further discussions are then held with the senior management and supervisory body of the institutions in order to agree the measures required to stabilize and improve business performance.

The results of the classification process provide important foundations for BVR-SE’s systematic preventive management. Institutions are put into preventive management measures if, based on the classification results, further key figures (e.g. key figures from institutions’ reporting systems or their financial planning and reporting data), qualitative information, and meetings held with the institutions on this basis indicate that a change of business policy is necessary.

Before the prevention phase, the monitoring of institutions with potential issues plays a significant role in the early identification of possible risk situations at institutions. Developments in the real estate markets continued to be particularly significant to this aspect of BVR-SE’s work in 2025. However, the problem was not so much one of decreases in new traditional home finance business with retail customers – the core assets-side business of many cooperative banks – but of increased risk in the commercial finance business.

Restructuring management

As before, the work of the dual cooperative protection scheme in restructuring member institutions is primarily aimed at ensuring, through the provision of supporting measures, that these institutions’ annual financial statements can be prepared on a going concern basis. This also helps to avoid regulatory measures against member institutions. The measures required are contractually agreed in order to ensure that the bank’s business regains its future viability while accommodating the interests of all members of the Cooperative Financial Network. BVR-SE’s statutes and BVR-ISG’s articles of association provide the legal basis for all actions of the dual cooperative protection scheme.

The ‘Manual for future-proof bank management – guidelines for reorganizing and restructuring cooperative banks’ forms the business basis for providing restructuring assistance and carrying out restructuring measures. The principles documented in the manual are designed to provide affected institutions with guidance on re-establishing competitive structures, e.g. through recovery, and describe concepts for restoring their fundamental profitability. The aim is for the institutions to complete this restructuring phase within no more than five years. The manual is also specifically aimed at institutions undergoing preventive measures and any institutions that have themselves identified the need for reorganization.

Over the course of 2025, a mid-single-digit number of institutions required supporting measures from BVR-SE due to institution-specific risk factors or weaknesses. There were only a few noteworthy repayments under debtor warrant obligations and other transfer obligations.

BVR-ISG had already achieved the target funding level required by law in 2024. Further contributions would only be required to be paid in if there were an increase in the volume of deposits covered and the returns generated by the fund were not sufficient to meet the additional cover required. This was not the case in 2025. Fund assets are held and safely invested in accordance with the relevant EU directive.

Overall, the business performance meant that the capital adequacy of the dual cooperative institutional protection scheme was almost at the prior-year level in 2025, despite the aforementioned cases where support was required.

Outlook for the dual cooperative institutional protection scheme

The main influence on the financial performance of the cooperative institutional protection scheme in 2026 will once again be the macroeconomic environment in Germany. Geopolitical tensions stemming from the Iran war could have a negative impact on the economy too. This may lead to new restructuring cases, resulting in risks for the dual cooperative institutional protection scheme and demands on its resources. However, these are again expected to be lower than in the reporting year. The reduction in fund assets within BVR-SE will be replenished through income from contributions in 2026 and subsequent years with the aim of restoring the asset volume to a target significantly above the 2023 level. Consequently, we believe that the IPS will be able to handle any further restructuring cases. A changing regulatory environment for institutional protection schemes could present both a structural risk and a high financial risk to the dual cooperative institutional protection scheme. In 2026, the focus will primarily be on updating the ‘Manual for future-proof bank management’ and refining BVR-SE’s classification process. The Geno Next Level project is also due to be completed.

The legislative process regarding crisis management (crisis management and deposit insurance, CMDI) at EU level has now been signed off without any structural consequences for the dual cooperative protection scheme, which means greater attention will be devoted to the creation of a European deposit insurance scheme (EDIS). We expect the European Commission’s initial proposals to be published from mid-2026 onward, followed by specific legislative proposals in 2027.

Regulatory capital

The consolidated financial statements of the Cooperative Financial Network provide a comprehensive overview of the main capital ratios, particularly the consolidated regulatory capital ratios. These capital ratios are fundamentally calculated in accordance with the CRR provisions using the extended aggregated calculation pursuant to article 49 (3) CRR in conjunction with article 113 (7) CRR. Information concerning the regulatory capital ratios relates to the reporting date of December 31, 2025 and does not include the retention of profits based on the 2025 annual financial statements. Profit is retained after the individual institution’s relevant committees have given their approval. This retention of profits will further strengthen capital in 2026.

The cooperative banks hold 84.0 percent of consolidated own funds. Growth in own funds arises primarily from the profits generated, and in most cases retained, by the cooperative banks and network institutions. Rights issues by the network institutions are for the most part subscribed internally and consolidated within the Cooperative Financial Network.

Due to the exclusion of internal exposures within the network in accordance with article 113 (7) CRR, the related amounts are generally not consolidated. The consolidation measures carried out primarily include directly and indirectly held own funds instruments within the Cooperative Financial Network and therefore particularly affect equity investments of cooperative banks and subordinate receivables due to them from the network institutions, especially from DZ BANK. The own funds instruments are consolidated in the relevant own funds categories and in the total risk exposure. The effects of consolidation on the level of the risk-weighted exposure amounts are negligible. The method by which the consolidation is carried out results in a reduction in own funds. The total capital ratio for the Cooperative Financial Network is therefore lower than the corresponding ratio for the sum of all cooperative banks.

Regulatory own funds stood at €148.8 billion as at December 31, 2025 and were thus up by 6.6 percent year on year (December 31, 2024: €139.6 billion). The rise in own funds mainly resulted from the retention of profits by the cooperative banks based on the 2024 financial statements.

The institutions in the Cooperative Financial Network primarily use the Standardized Approach to credit risk (CRSA) to determine their regulatory capital requirements. Some institutions also apply the Internal Ratings-Based Approach (IRB Approach), including institutions in the DZ BANK Group, Münchener Hypothekenbank eG, and Deutsche Apotheker- und Ärztebank eG. The table below shows the risk-weighted assets of the institutions in the Cooperative Financial Network.

The 4.8 percent increase in risk-weighted assets to €864.1 billion as at December 31, 2025 was mainly due to the effects of implementing CRR III on credit risk under the CRSA. The reduction in the exposures under the IRB Approach was primarily attributable to reclassifying equity exposures to the CRSA as part of the implementation of CRR III.

BVR-SE analyzes the regulatory capital ratios of each member institution on an ongoing basis. The institutions themselves are responsible for fulfilling the regulatory requirements at all times, including in respect of bank-specific SREP surcharges based on the Supervisory Review and Evaluation Process (SREP).

In terms of the regulatory minimum capital requirements and the SREP requirements, the total capital ratios of the individual institutions in the Cooperative Financial Network were solid as at December 31, 2025 (see chart).

The Cooperative Financial Network reported equity of €158.5 billion as at December 31, 2025 (December 31, 2024: €150.6 billion). It has continually boosted its level of capital in recent years by retaining profit. This trend substantiates the Cooperative Financial Network’s sustainable business model with its broad diversification of sources of risk and income.

The Cooperative Financial Network’s consolidated leverage ratio pursuant to the CRR came to 8.7 percent as at December 31, 2025 (December 31, 2024: 8.4 percent). In terms of the regulatory minimum capital requirements and the SREP requirements, this is continued proof of the healthy capital adequacy of the Cooperative Financial Network. The rise in the leverage ratio was attributable to the increase of €8.1 billion in Tier 1 capital. The leverage ratio is calculated for the Cooperative Financial Network in accordance with the provisions of article 429 CRR. It is based on Tier 1 capital as determined in the extended aggregated calculation in accordance with article 49 (3) CRR. The risk exposures are determined by aggregating the individual leverage ratio submissions of all the institutions in the Cooperative Financial Network and adjusting them for material internal exposures within the joint liability scheme. The leverage ratio total exposure measure increased by 2.5 percent year on year, rising to €1,642.3 billion.

Normative and economic risk-bearing capacity

Capital is proactively managed to ensure that an institution always has an adequate level of capital. This is achieved with calculations of risk-bearing capacity, in which the available risk capital is compared with the capital risks taken on. Risk-bearing capacity must be examined from two perspectives that complement each other, namely the normative and the economic perspectives. The normative perspective is centered on the institutions having adequate levels of regulatory capital. The economic perspective focuses on the adequate and efficient allocation of an institution’s risk coverage potential across its material risk types.

Capital management is a core management task for all institutions in the Cooperative Financial Network. Pursuant to the Minimum Requirements for Risk Management (MaRisk), the institutions must structure it according to the specifics of their organization, reflecting their complexity, scope of business activities, and size. The cooperative banks’ main risk types in this context are usually counterparty risk, market risk (including interest-rate risk), liquidity risk, and operational risk.

For the purposes of the IPS, the normative and economic perspectives of risk-bearing capacity are calculated annually on the basis of the aggregated risk data from the individual member institutions. Despite the challenging economic environment, the Cooperative Financial Network strengthened its consolidated equity position in 2025. Based on internal reporting data, the Cooperative Financial Network’s normative risk-bearing capacity was satisfactory with a utilization level of 81.3 percent as at December 31, 2025 (December 31, 2024: 83.1 percent). In the economic calculation of risk-bearing capacity, the median utilization for the institutions in the Cooperative Financial Network stood at 43.7 percent of the total economic capital as at December 31, 2025.

parcIT GmbH, the center of excellence for management processes in the Cooperative Financial Network helped the cooperative banks to apply and refine their procedural and calculation methods for risk-bearing capacity. Areas of focus in 2025 included optimization of risk-bearing capacity processes following a special audit pursuant to section 44 of the German Banking Act (KWG) and the development of special guidelines for small and very small cooperative banks. In addition, the central support services for integrating sustainability risks (ESG risks) into strategic bank management were updated.

Credit ratings of the Cooperative Financial Network

The Cooperative Financial Network has been awarded a credit rating of AA− from Fitch and of A+ from Standard & Poor’s, in both cases with a stable outlook. The agencies point to the consistently successful business model focused on retail and corporate banking as the reason for the current credit ratings. Capital adequacy continues to be judged as above average in terms of quantity and quality. The rating agencies recognize the Cooperative Financial Network’s ability to build up capital from its own resources by retaining profits. The granular credit structure and high proportion of mortgages in the retail business are the hallmarks of the overall high level of quality in the customer lending business. Funding based on customer deposits remains stable, even in the prevailing interest-rate environment. The dual cooperative protection scheme is seen by the rating agencies as an important connecting link and a crucial element of the risk governance system in the Cooperative Financial Network.

Credit risk

Credit risk is the risk of losses that may arise as a result of the default or deterioration in the creditworthiness of a borrower, issuer, counterparty, or equity investment. As at December 31, 2025, the credit risk-weighted assets of the Cooperative Financial Network amounted to €781.0 billion (December 31, 2024: €751.7 billion), which equated to 90.4 percent of total risk-weighted assets (December 31, 2024: 91.2 percent). This means that credit risk is the most significant risk category for the Cooperative Financial Network’s risk-bearing capacity in the normative perspective.

To assess the creditworthiness of individual borrowers in the customer business, the institutions use segment-specific rating systems. Most of the institutions measure risk in the economic perspective on the basis of value at risk (VaR; generally with a confidence level of 99.9 percent and a holding period of 250 days), which is calculated using a credit-portfolio model. These processes are validated annually at both parameter level and overall model level.

To assess the credit quality of own-account investments, the institutions use segment-specific rating systems and, in some cases, assessments from external rating agencies. In the case of own-account investments too, economic risk is usually measured on the basis of VaR (generally with a confidence level of 99.9 percent and a holding period of 250 days), which is calculated using a regularly validated portfolio model. Scenario analysis and stress analysis are regularly used both in the customer lending business and for own-account investments to supplement the credit-portfolio models.

Lending to regional retail and corporate customers is a core element of the Cooperative Financial Network’s strategy. This involves the profit-oriented assumption of risk, taking account of the level of equity and pursuing a risk-conscious lending policy. For the institutions in the Cooperative Financial Network, knowledge about customers plays a central role in lending, as does the capacity of customers to meet their obligations. Overall, the Cooperative Financial Network’s customer lending business has a predominantly granular credit structure and a high proportion of loans secured against real estate. The granularity and extensive regional diversification of the Cooperative Financial Network’s business activities in Germany limit the formation of risk clusters.

The Cooperative Financial Network’s lending business grew slightly in 2025. Loans and advances to customers increased by 2.9 percent year on year (2024: 2.6 percent). Long-term home finance remained the principal driver of the growth in lending. Demand for mortgages rose as households adjusted to the new level of interest rates and the prospects for the housing market improved. Prices in the German housing market over the course of 2025 point to a recovery. According to data from the Verband deutscher Pfandbriefbanken (vdp) [Association of German Pfandbrief Banks], prices for owner-occupied residential property went up by 2.6 percent in 2025. This followed around two years of falling prices (2024: fall of 1.6 percent; 2023: fall of 4.1 percent). Prices also stabilized in the commercial real estate market, climbing by 2.9 percent year on year (2024: fall of 5.4 percent; 2023: fall of 10.2 percent).

The growth in the local cooperative banks’ corporate banking business was predominantly driven by lending to companies in the service and energy sectors. The local cooperative banks regularly assist with projects in the renewable energies market and provide financial support to companies in relation to projects for increased energy efficiency and for power generation from renewable sources. The DZ BANK Group’s lending business was primarily focused on entities within the Cooperative Financial Network, on corporate banking, and on real estate finance in the reporting year.

There was a further increase in the number of insolvencies in 2025. According to the Statistisches Bundesamt [German Federal Statistical Office], personal insolvencies went up by 8.4 percent to 77,219 in the year under review. The number of corporate insolvencies rose by 10.3 percent. As had been the case in 2024, the transportation, warehousing, construction, and hospitality sectors were particularly affected.

The expense for loss allowances amounted to €4.3 billion in 2025 (2024: €4.5 billion) and was mainly attributable to the larger addition required for loss allowances as a result of the gloomier economic conditions and the increase in corporate and personal insolvencies over the course of the year. According to the internal reporting, the Cooperative Financial Network’s NPL ratio (non-performing loans as a proportion of the total lending volume) rose to 2.2 percent as at December 31, 2025 (December 31, 2024: 1.9 percent). This rise in the NPL ratio was attributable to Germany’s sustained period of economic weakness over many years and the diminishing ability of German businesses and individuals to service their debts. In summary, the institutions in the Cooperative Financial Network operate a healthy lending business overall.

In 2025, work to refine the methodologies used for the counterparty risk process focused on optimizing the present-value credit portfolio model, including the estimation of loss rates. Among the segment-specific rating systems, the systems for real estate customers and corporate customers were refined.

Market risk

Market risk is the risk of losses that could arise from adverse changes in market prices or in factors that influence prices. Market risks are generally grouped into the following categories: interest-rate risk, equity risk, currency risk, and commodity risk. As at December 31, 2025, the risk-weighted assets of the Cooperative Financial Network for market risk amounted to €12.0 billion (December 31, 2024: €12.1 billion), which equated to 1.4 percent of total risk-weighted assets (December 31, 2024: 1.5 percent). Interest-rate risk is the most significant form of market risk, directly followed by equity risk. Other types of market risk are less important to the Cooperative Financial Network’s risk profile owing to the business structure of the network.

The institutions in the Cooperative Financial Network chiefly use VaR models to measure and manage their market risk. They also use various scenario analyses (planning, adverse, and stress scenarios), for example to produce their capital plans and create transparency about the impact of developments in the markets.

The assumption of market risk – particularly interest-rate risk – has a significant influence on the institutions’ financial performance. As in previous years, the largest proportion of net interest income was generated from net interest margin contributions in the customer business.

With the yield curve returning to normal and the aforementioned adjustments to interest rates being made, the Cooperative Financial Network’s net interest income improved by 0.8 percent in 2025. Economic interest-rate risks in the banking book are determined as part of the reporting for all institutions using six regulatory interest-rate scenarios. The level of risk rose slightly year on year over the course of 2025. The scenario with the biggest impact in terms of amount was a strong parallel up scenario.

The cooperative banks have a suitable system for managing market risk in the economic perspective. This process, the present-value market risk model, was further refined by parcIT GmbH in 2024. In 2025, the refined process underwent initial validation and the related process documents were finalized. Present-value models for measuring market risk are also used by the institutions in the DZ BANK Group and Münchener Hypothekenbank eG. The institutions within the Cooperative Financial Network calculate their market risk based on a one-year horizon and a confidence level of 99.9 percent.

Liquidity risk

Liquidity risks in the Cooperative Financial Network can be divided into insolvency risk (liquidity risk in the narrow sense of the term), funding cost risk, and market liquidity risk. In the Cooperative Financial Network, liquidity risk in the narrow sense is managed with the aim of ensuring that a bank can meet its payment obligations at all times. In accordance with the cooperative principle of subsidiarity, each cooperative bank is in charge of its own liquidity management and risk management. Compliance with the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), which are regulatory normative key figures, is a core aspect of liquidity analysis for the institutions in the Cooperative Financial Network. The institutions also deploy business management tools, for example to determine liquidity risk and any changes in liquidity levels. Stress tests are carried out too.

For many years, the Cooperative Financial Network has had a liquidity structure that is deemed reliable and crisis-resistant. The loan to deposit ratio of the Cooperative Financial Network is 99.3 percent (December 31, 2024: 99.0 percent). The basis for this lies in the diversifying, risk-mitigating effect created by the stable and granular business structure of the cooperative banks and, in particular, in the institutions’ traditional method of obtaining funding through customer deposits. This reflects the recognition by customers of the Cooperative Financial Network of the effectiveness of the institutional protection provided by BVR-SE and BVR-ISG, which is particularly aimed at safeguarding deposits and goes beyond the statutory requirements regarding deposit protection.

The liquidity of the Cooperative Financial Network is characterized by the strong portfolio of deposits from retail and corporate customers. This deposit portfolio has an extremely granular structure. Excess liquidity is invested using the Cooperative Financial Network’s internal market system at DZ BANK. As the central institution, DZ BANK is responsible for offsetting liquidity peaks that arise by pooling the excess liquidity from individual cooperative banks and balancing out differences in their liquidity levels. BVR-SE shares information about the liquidity situation of the individual institutions with DZ BANK on an ongoing basis. In addition, BVR-SE monitors the liquidity situation of the individual institutions and the aggregate liquidity situation of the network as a whole as part of its responsibilities under its statutes.

As a result of the ample loan to deposit ratio and the excess of liquidity that the cooperative banks hold at DZ BANK as the central institution, the funding cost risk of the Cooperative Financial Network is structurally limited, although it is becoming more significant at a time of volatile short-term interest rates and aggressive new market players.

The liquidity situation at the institutions remained stable in 2025. The consolidated LCR for the Cooperative Financial Network stood at 170.1 percent as at December 31, 2025 and was thus higher than the figure of 165.0 percent1 as at December 31, 2024.

The NSFRs were also monitored as a way of measuring the institutions’ ability to meet their payment obligations over the longer term. The median NSFR for all institutions in the Cooperative Financial Network exhibited a very low level of volatility during the reporting year. As at December 31, 2025, this figure came to 120.2 percent (December 31, 2024: 121.1 percent), remaining at the largely stable level seen over a longer-term observation period. Once again, the Cooperative Financial Network’s liquidity structures proved resilient even during a challenging year characterized by a rapidly changing market environment.

From the network’s perspective, market liquidity risk is of lesser importance because a material proportion of own-account investments are held in high-quality liquid assets and central bank reserves.

Operational risk

Based on the definition used by the banking regulator, operational risk is the risk of losses arising from inadequate or failed internal processes, personnel, or systems, or from external events. As at December 31, 2025, the risk-weighted assets of the Cooperative Financial Network attributable to operational risk amounted to €66.0 billion (December 31, 2024: €57.0 billion), which equated to 7.6 percent of total risk-weighted assets (December 31, 2024: 6.9 percent). This increase arose as a result of switching the methodology to CRR III in 2025. Otherwise, operational risk held steady.

One of the aims of the cooperative banks’ internal control system (ICS) is to reduce operational risk. The ICS comprises an internal management system and an internal monitoring system that, in turn, consists of monitoring mechanisms that are built into processes as well as cross-process monitoring mechanisms. The various mechanisms include procedural instructions, application of the principle of separation of functions, the use of standardized contract templates that have been reviewed by a legal expert, and the appointment of IT security, compliance, data protection, and anti-money-laundering officers. In addition, business continuity plans for failure of technical equipment are in place.

Internal control processes are designed to ensure that material operational risks are identified, analyzed, and assessed on a regular basis. The institutions can use guidelines to conduct a systematic risk assessment in accordance with market standards. The institutions record any loss events in their own database. Based on the outcome of the loss event analysis, internal procedures are adjusted and preventive safeguards implemented as necessary.

Operational risk is measured in consideration of the business model of the individual institution. Most institutions use lump sums for quantification, while some use VaR approaches.

Customer membership is a distinctive feature of the cooperative banks’ business model and one that is ideally suited to conveying the values of the cooperative idea. It offers the cooperative banks and product suppliers in the Cooperative Financial Network the opportunity to differentiate themselves from rival banking groups. In our view, the cooperative principle has received a boost – partly because geopolitical tensions have resulted in a trend toward regionalization – that creates new opportunities for the cooperative banks to strengthen their competitive position. Regional roots and an extensive branch network also help the cooperative banks to maintain proximity to their customers. At the same time, products and services are being digitalized and are being offered to members and customers through all of the touchpoints that they want, from local branches to online and hybrid banking.

Headed up by the BVR, the Germany-wide strategic portfolio (BSP) was developed in close collaboration with the institutions and network partners in order to bring together strategic initiatives of the Cooperative Financial Network. The portfolio is updated on an ongoing basis. The aim of the BSP is to create transparency with regard to the network’s material strategic initiatives and to develop specific solutions for the cooperative banks. The BSP thus enables a structured discussion on strategic areas of focus and their prioritization within the network.

Material initiatives in the BSP are aligned with the strategic objective of strengthening customer and market relevance. In addition to strengthening membership as a unique selling proposition, the focus is on attracting young customers and further expanding digital products and services. At the same time, long-standing members and customers are served by a comprehensive range of advisory services that are supplemented by intergenerational management. Competition is particularly fierce in securities business involving securities account solutions. In this business, the cooperative banks are – starting from a strong position – tapping into additional market opportunities by offering contemporary digital products and services combined with personal advice.

With Wero now being rolled out to retail customers and merchants, the institutions in the Cooperative Financial Network are participating in the establishment of a European payment solution that supports the independence of international payment systems.

The expansion of the Corporate Banking business line in the cooperative banks is one of the main drivers of the growth of the customer business. The initiative ‘Effizienzen und Potenziale im Firmenkundengeschäft’ (efficiencies and potential in corporate banking) brings together various sales approaches, linking them with new technical solutions for an improved customer experience and enabling more efficient and more profitable marketing in the cooperative banks. The Cooperative Financial Network has also created structures for its marketing that, based on the strategic use of data, allows it to offer even more tailored advice to its retail and corporate customers and address them efficiently through all channels.

To ensure the long-term profitability and stability of the Cooperative Financial Network, the focus is not only on topics relating to bank management but also on the development of processes and solutions for the efficient and automated handling of cases through to their closure. The aim is to develop processes in the new operating model that can make a lasting difference in the cooperative banks.

Embedding sustainability across the board requires transparency both internally and externally. This can be seen, for example, by products and services that are aligned with sustainability criteria in order to help members and customers with the transition to a sustainable economy and society and to promote sustainable livelihoods in the regions. Opportunities arise here in connection with supporting the shift toward decentralized power generation and expanding the regional electricity grid infrastructure. The Cooperative Financial Network can be a reliable partner for the regional implementation of Germany’s sustainability strategy, which covers affordable and clean energy, sustainable cities and communities, and climate action.

At the core of the strategic objective ‘ability to change’ is the Cooperative Financial Network’s strategic HR management. This gives the banks the opportunity to strengthen their future viability over the long term thanks to the strategic structuring of key action areas, primarily employer branding and the systematic refinement of the concept of employees as the key to success. The goal is to proactively shape demographic change and, at the same time, ensure that the institutions in the Cooperative Financial Network can continue to attract skilled workers in the long term.