- Earnings up a further 9.6 percent on the strong previous year
- Very good operating profit in all customer segments; total lending to corporate and real estate customers rises, DKB gains some 400,000 new retail customers
- High portfolio quality results in low risk provisions of EUR -87m; BayernLB’s NPL ratio of 1.6 percent one of the lowest among German banks
- Cost/income ratio remains in the target range at 59.3 percent
- Strong CET1 ratios: improved once again to 14.7 percent phase in and 13.2 percent fully loaded from the Bank's own resources despite repayment to the Free State of Bavaria
Munich – BayernLB increased its earnings further in 2016, posting profit before taxesof EUR 708 million. This was a significant improvement over the strong earnings in the previous year (EUR 646 million). All BayernLB’s business segments made a positive contribution to earnings.
“We continued to perform well in 2016 and further consolidated our position among the leading German corporate and real estate banks. In retail banking we further bolstered DKB’s strong position as one of the leading online banks, gaining almost 400,000 new customers,” commented BayernLB CEO Johannes-Jörg Riegler. “We countered the challenging market environment, in which low interest rates, steadily rising regulatory costs and intense competition has long since become the new normal for banks, with our strong customer-driven business and cost-efficient operations,” Riegler added. Looking forward to the year to come he explained “to ensure we can make the necessary investment in the future in these challenging times, we launched an efficiency programme at the end of 2016 that goes far beyond pure cost consciousness. The focus is on continuing to drive forward the modern, agile organisation of our Bank by steadily fostering entrepreneurial thinking and action, personal responsibility and a culture of innovation. With a view to our operational efficiency, we are concentrating on continually developing our digital platforms so we can support our customers with forward-looking banking solutions.”
Net interest income at BayernLB decreased to EUR 1,475 million last year (FY 2015: EUR 1,612 million) as a result of the low interest rates and the reduced business volume.In contrast, net commission income climbed slightly to EUR 296 million (FY 2015: EUR 289 million).
BayernLB posted low risk provisions in the credit business of just EUR -87 million (FY 2015: EUR -264 million).This reflects the high quality of BayernLB’s loan portfolio and is also the result of the successful restructuring. BayernLB works continually on improving its portfolio and cut the share of non-performing loans (NPL) further in the reporting period. The NPL ratio was an excellent 1.6 percent at the end of 2016 (FY 2015: 2.4 percent).
The gains or losses on fair value measurement item swung to a gain of EUR 142 million from a loss of EUR 56 million in the year before period.Gains or losses on financial investments were EUR 274 million (FY 2015: EUR 286 million).This included EUR 144 million from the sale of a stake in Visa Europe Ltd. and EUR 28 million from the sale of shares in Deutsche Factoring Bank.
Driven largely by much higher costs for meeting regulatory requirements and costs for pension provisions, administrative expenses rose to EUR 1,280 million (FY 2015: EUR 1,168 million). BayernLB’s cost-cutting programme, which the Bank started in 2013 and has systematically implemented since then, prevented this increase from being more pronounced. In future, this programme will be accompanied by an efficiency programme, which BayernLB launched at the end of 2016. Expenses for the bank levy and deposit guarantee scheme comprised a total charge on earnings of EUR 88 million (FY 2015: EUR 90 million). The bank levy accounted for EUR 51 million (FY 2015: EUR 39 million) and the contribution to the Savings Bank Finance Group joint liability scheme for EUR 37 million (FY 2015: EUR 50 million).
BayernLB has now almost finished winding down its remaining non-core business, reducing its total assets to EUR 212.1 billion last year (FY 2015: EUR 215.7 billion). Risk-weighted assets (RWA) were cut to EUR 65.2 billion (FY 2015: EUR 69.6 billion) as a result of further optimisation measures and also due to the reduction of non-core business.
BayernLB’s Common Equity Tier 1 (CET1) ratio was a solid 14.7 percent at the end of 2016 (FY 2015: 15.1 percent). The decline on the previous year was largely due to the repayment in April 2016 of EUR 1.3 billion in silent partner contributions to the Free State of Bavaria. The fully-loaded ratio, however, which is important for estimating future capital strength, rose from 12.0 percent to 13.2 percent. At 59.3 percent, the cost/income ratio (CIR) remained within the target range (FY 2015: 53.6 percent). BayernLB’s return on equity (RoE) rose to 8.1 percent (FY 2015: 6.7 percent) in the reporting period.
BayernLB’s good performance was also confirmed by rating upgrades in 2016. At the beginning of the year, Moody's raised BayernLB's long-term issuer rating to A2. In May, Fitch upgraded its standalone rating (viability rating) for BayernLB by two notches to bbb.
Efficient Asian network for German companies thanks to strategic partnership with Standard Chartered Bank
BayernLB continues to pursue its proven strategy of expanding its range through strategic partnerships that complement its business, allowing it to offer top quality products and services in segments in which it is not itself specialised. In November of 2016, the Bank signed a partnership with Standard Chartered Bank in order to team up together in trade finance. It will now be able to offer companies and savings banks in Germany an even wider range of services for their business in Asia. The partnership with private bank Berenberg, which was initiated in 2015, paid off in the past year with joint support for initial public offerings and other equity capital measures on the market.
BayernLB is concentrating on its forward-looking core business with large and medium sized companies, real estate customers, savings banks and the over three million retail customers of its DKB subsidiary. The Bank continued to wind down its non-core business at a fast pace last year and has almost completed this process well ahead of schedule. The Non-Core Unit was therefore reported as a separate segment for the last time in financial year 2016.
Corporates & Mittelstand
Operating earnings from net interest income and net commission income remained largely stable at EUR 418 million (FY 2015: EUR 432 million) despite the still difficult interest rate environment. Earnings from the sale of Financial Markets products to customers were also on a par with the pleasing figure in the year before. Nonetheless, the segment’s profit before taxes fell to EUR 203 million (FY 2015: EUR 282 million), mainly due to the performance of risk provisions. Although the latter made a positive EUR 8 million contribution to earnings, the year-before figure benefited from considerably higher recoveries on written down receivables (FY 2015: EUR 65 million). Total lendings in the Corporates & Mittelstand segment also rose slightly in 2016. In addition, the number of new corporate customers rose by triple digits again, permitting BayernLB to further consolidate its position as one of the top corporate lenders in Germany.
Real Estate & Savings Banks/Association
In Real Estate & Savings Banks/Association, profit before taxes was almost on a par with the previous year at EUR 203 million (FY 2015: EUR 212 million). In the Real Estate division, new business rose to EUR 4.9 billion, up from EUR 4.4 billion the previous year. Profit before taxes in the Real Estate division was EUR 127 million following EUR 157 million the year before. However, the year-before figure had benefited from much higher releases of risk provisions. Profit before taxes in the Savings Banks & Association division was EUR 0 million (FY 2015: EUR 9 million). The drop was mainly due to BayernLB’s good liquidity position and thus lower funding needs, and the low interest rate environment. The latter contributed to record sales in the gold coins and bars business, but also dampened demand for capital market products. BayernLabo, BayernLB’s development bank, posted much higher earnings than the previous year at EUR 77 million (FY 2015: EUR 47 million).
DKB’s good performance continued. Profit before taxes climbed to EUR 381 million (FY 2015: EUR 336 million). The increase was largely driven by the sale of the stake in Visa Europe Ltd., of which EUR 132 million was booked by DKB. Net interest income remained stable at EUR 786 million (FY 2015: EUR 789 million) in spite of the still difficult interest rate environment. Gaining almost 400,000 new retail customers in 2016 further consolidated DKB’s position as one of the leading online banks in Germany.
In Financial Markets, BayernLB slightly bolstered earnings from customer-driven business with capital market products. These earnings are reported under the respective segments. Profit before taxes in the Financial Markets segment was EUR 29 million (FY 2015: EUR 145 million). The decrease in net interest income, driven largely by the low interest rates, was the primary factor weighing on these earnings. In addition, measurement effects once again impacted earnings significantly. For example, there was a negative impact on the valuation of the Bank’s own issues following rating upgrades.
Profit before taxes in the Non-Core Unit at EUR -10 million (FY 2015: EUR -347 million) improved significantly year on year. Risk-weighted assets (RWA) dropped by almost half once again to only EUR 2.6 billion by the end of 2016 (FY 2015: EUR 4.8 billion). BayernLB has therefore largely finished winding down its non-core activities. As at 1 January 2017 the Non-Core Unit has ceased to be an independent segment.
Despite the extremely challenging economic environment, BayernLB expects its financial performance for 2017 to be solid based on its good portfolio quality and stable customer base. But geopolitical risks, the oil price, interest rates and exchange rates will be key factors fuelling uncertainty. BayernLB forecasts that it will once again post a profit before taxes in the mid-triple-digit million range for full year 2017.
The complete press release, including tables, is available in the download box.
The full consolidated financial report for financial year 2016 will be available to download as a PDF file from 28 April 2017 in German and English on the BayernLB website.