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German bank regulator warns sector vulnerable to interest rate shock

The logo of Germany's Federal Financial Supervisory Authority BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) is pictured outside an office building of the BaFin in Bonn

FRANKFURT (Reuters) - Germany's financial regulator BaFin considers another sudden and sharp interest rate hike to be one of the greatest threats currently facing the banking sector, according to a report published on Monday.

The abrupt rise in interest rates is already putting pressure on the profitability of many banks by causing losses in the securities portfolios of some institutes, the regulator said in the report.

"Another sudden and sharp rise in interest rates would put some institutions under severe strain," it added.

"For many smaller banks, hidden reserves as a first line of defence are now depleted," BaFin president Mark Branson said upon presenting the report. "We are now prioritising capital planning for institutions with little excess capital and high interest rate risks."

(Reporting by Marta Orosz, Writing by Rachel More; editing by Matthias Williams)