BayernLB

17-Aug-2017

BayernLB’s first-half earnings rise to EUR 426 million

  • Profit before taxes beats good results from year-before period (H1 2016: EUR 409 million)
  • Strong contribution to earnings from all customer-serving business areas in a difficult business environment
  • Risk provisions fall thanks to good portfolio quality; NPL ratio hits new low of 1.4 percent
  • Highly solid Common Equity Tier 1 (CET1) ratio of 13.3 percent fully loaded
  • Final billion repaid to the Free State of Bavaria; EU proceedings end two years ahead of schedule

Munich – The BayernLB Group posted a strong profit before taxes of EUR 426 million in the first half of 2017, surpassing the good earnings in the year-before period (EUR 409 million). Consolidated net profit (after taxes) climbed to EUR 330 million (H1 2016: EUR 314 million). BayernLB’s fully-loaded Common Equity Tier 1 ratio (CET1 ratio) rose to a very solid 13.3 percent. Return on equity (RoE) for the first six months of 2017 was also higher, rising to 9.6 percent (H1 2016: 9.3 percent). At 59.5 percent, the cost/income ratio (CIR) remained within the target range (H1 2016: 52.9 percent).

“Our strong earnings in the first half underscore once again the success of our transformation over the past few years into a sustainable customer-focused bank,” commented Johannes-Jörg Riegler, BayernLB CEO. “Today the Bank is on an even keel. Now that the EU proceedings have been brought to an early close, our aim is to further consolidate this performance and prudently forge ahead with executing the Bank’s successful business model. To this end we have been working for some time on various strategic initiatives to leverage additional earnings potential for BayernLB, without weakening our conservative risk profile. Supported by the Efficiency Programme now in progress, we are on course to turn BayernLB from the very well-positioned bank it is today into one of Europe’s strongest regional banks,” Riegler continued.

Despite the challenging environment, BayernLB’s net interest and net commission income were higher. Net interest income climbed to EUR 845 million (H1 2016: EUR 728 million) while net commission income increased to EUR 141 million (H1 2016: EUR 133 million).

Thanks to the good quality of its loan book, BayernLB once again posted a gain in risk provisions in the credit business. The release of risk provisions and recoveries on written down receivables were also partly responsible for the gain to EUR 90 million (H1 2016: EUR -4 million) in this item. BayernLB works continually to improve the quality of its portfolio. Accordingly, the share of non-performing loans (NPL) decreased further leading to an excellent NPL ratio of 1.4 percent at the end of the first-half of 2017 (31 December 2016: 1.6 percent).

Gains or losses on fair value measurement surged compared to the year-before period to EUR 143 million (H1 2016: EUR 13 million). Gains or losses on financial investments dropped to EUR 16 million (H1 2016: EUR 216 million). The high figure in the previous year period was boosted by the sale of the Visa Europe Ltd stake.

Administrative expenses rose to EUR 612 million (H1 2016: EUR 578 million). This increase is mainly due to the high costs of meeting regulatory requirements. Ongoing programmes to cut costs and boost efficiency were able to dampened the rise but not offset it completely. Expenses for the bank levy and deposit guarantee scheme comprised a total charge of EUR 84 million (H1 2016: EUR 93 million). This included EUR 52 million for the bank levy (H1 2016: EUR 51 million) and a EUR 32 million contribution to the Savings Banks Finance Group's deposit guarantee scheme (H1 2016: EUR 42 million).

BayernLB’s fully loaded Common Equity Tier 1 ratio (CET1) rose again year on year and now stands at a very solid 13.3 percent (31 December 2016: 13.2 percent).

The BayernLB Group's total assets rose by 4.1 percent to EUR 220.9 billion from the end of 2016 (31 December 2016: EUR 212.1 billion). Risk-weighted assets (RWA) were shaved by 2.4 percent thanks to stringent management. They amounted to EUR 63.6 billion (H1 2016: EUR 65.2 billion).


Repayment of the last outstanding billion to the Free State of Bavaria and early conclusion of the EU proceedings

At the end of June, BayernLB repaid the last outstanding EUR 1 billion of silent partner contributions to the Free State of Bavaria, thus meeting ahead of schedule the condition imposed in the EU state aid proceedings to pay back a total of EUR 5 billion in state aid. Including fees paid for the guarantee on ABS instruments provided by the Free State of Bavaria (the Umbrella), BayernLB has paid a total of nearly EUR 5.5 billion to the Free State of Bavaria since 2012.

With the repayment of the silent partner contributions the EU state aid proceedings have been brought to an end two and a half years ahead of schedule and all restrictions imposed on the Bank’s business to offset the competitive advantages from the state aid have now been lifted. The early repayment was made possible by BayernLB’s strong business performance over the past few years and the solid capital base that goes with it. BayernLB’s financial stability has also been acknowledged by the approval from the competent authorities (the European Central Bank (ECB), the German Bundesbank, The German Financial Supervisory Authority (BaFin) and the EU Commission) to repay the silent partner contribution.


Moody’s upgrades BayernLB’s long-term issuer rating to A1

BayernLB’s sustained positive performance in the past few years and the success of its customer-focused business model has also been confirmed by another rating upgrade. In April 2017, Moody’s raised BayernLB’s long-term issuer rating one notch from A2 to A1, maintaining the outlook at stable. The upgrade was largely based on an improvement in the Baseline Credit Assessment as a result of a better financial profile. In addition, the rating agency cited in particular BayernLB’s solid fully loaded CET1 ratio and good asset quality. It was the third time Moody’s has upgraded the Bank’s rating since 2014.


Operating segments at a glance

Corporates & Mittelstand

Profit before taxes in BayernLB’s Corporates & Mittelstand segment was ap-proximately 25 percent higher than the year-before period, rising to EUR 148 million (H1 2016: EUR 118 million). Operating earnings from net interest and net commission income rose slightly, despite the persistently tough interest rate environment, to a total of EUR 204 million (H1 2016: EUR 201 million). The hike in earnings is mainly due to risk provisions, which benefited much more than in the year-before period from recoveries on written down receivables and made a positive contribution of EUR 68 million to earnings (H1 2016: EUR 22 million)

Real Estate & Savings Banks/Association

In Real Estate & Savings Banks/Association, profit before taxes amounted to EUR 87 million (H1 2016: EUR 121 million). In the Real Estate division, customer demand remained high and operating income from net interest and net commission income grew. The decline in earnings in the segment was partly due to higher administrative expenses to implement tighter regulatory requirements. In addition, the figure for the year-before period included income from the sale of a shareholding in the Real Estate division and mark-to-market gains on derivative transactions to hedge interest rate risk at BayernLabo.

DKB

DKB’s positive performance continued in the first half of 2017. Net interest income rose to EUR 429 million (H1 2016: EUR 389 million). Nevertheless, profit before taxes of EUR 116 million was down from the year-before period (H1 2016: EUR 241 million). Earnings in the year-before period, however, were boosted significantly by proceeds of EUR 130 million from the sale of the stake in Visa Europe Ltd. In the first six months of 2017, the number of DKB’s retail customers grew to almost EUR 3.6 million, thereby further consolidating its position as Germany’s second-largest online bank.

Financial Markets

Profit before taxes in the Financial Markets segment grew to EUR 109 million in the first half of 2017. That represents a turnaround of approximately EUR 160 million from the year-before period (H1 2016: EUR -51 million). The sharp increase in net interest income to EUR 95 million (H1 2016: EUR -11 million) significantly boosted the segment’s earnings. Besides gains from one-off items, the increase resulted mainly from the success of measures to counteract the negative impact of low interest rates in the year-before period. Mark-to-market valuations likewise had a positive impact on earnings. As usual, earnings from Financial Markets products on behalf of the other customer-serving business segments were reported under those segments.


Outlook for full-year 2017

Despite the extremely challenging economic environment and ever-tighter regulation, BayernLB expects full-year 2017 earnings to be solid. In view of its sound operating business, good portfolio quality and stable customer base, BayernLB still expects a profit before taxes in the mid triple-digit million range, providing macroeconomic conditions remain unchanged.