BayernLB

22-Mar-2018

BayernLB’s consolidated profit grows more than 24 percent to EUR 677 million

  • Net interest income up around 13 percent to EUR 1,659 million (FY 2016: EUR 1,475 million)
  • Cost/income ratio of 59.9 percent remains within target range;
    administrative expenses down slightly despite higher regulatory costs and investment in digitalisation (-1.8 percent to EUR 1,258 million)
  • Risk provisions at a low EUR -94 million due to good portfolio quality; NPL ratio of 1.5 percent is a new best
  • Very solid capital base: fully loaded CET1 ratio jumped to 15.3 percent (FY 2016: 13.2 percent)
  • Bank plans to distribute EUR 50 million to owners
  • Various new strategic initiatives were launched to further grow the Bank’s earnings
  • Outlook for 2018: BayernLB once again expects earnings in the mid triple-digit million range

Munich -BayernLB’s consolidated profit (after taxes) rose 24.4 percent to EUR 677 million in financial year 2017 (FY 2016: EUR 545 million). Profit before taxes remained largely stable at EUR 652 million (FY 2016: EUR 708 million), despite the one-off income of EUR 178 million from the sale of shareholdings in Visa Europe Ltd. and Deutsche Factoring Bank. The BayernLB Group significantly boosted its operating income in 2017, posting a big increase in net interest income of 12.5 percent to EUR 1,659 million (FY 2016: EUR 1,475 million).At the same time the Bank’s efforts to limit costs also paid off. For example, BayernLB’s administrative expenses fell slightly by 1.8 percent to EUR 1,258 million (FY 2016: EUR 1,280 million), despite persistently high costs for complying with regulatory requirements and investing in digitalisation projects. The Bank made good progress in improving its capital ratio. The fully loaded CET1 ratio increased to 15.3 percent (FY 2016: 13.2 percent).

“We once again posted very good earnings in 2017, despite the market environment which remains challenging. In addition, we completed the compulsory activities to restructure the Bank more than two years ahead of schedule by repaying the final billion to the Free State of Bavaria and bringing the EU state aid proceedings to a close,” commented BayernLB CEO Johannes-Jörg Riegler. “To use an ice-skating analogy, we are now moving on to the “freestyle part”, to this end we are working on fine-tuning our earnings, while constantly improving our operational efficiency and continually refining our digital platforms. We have also drawn up a package of strategic initiatives to make BayernLB even more profitable in the next few years and to further consolidate our position as one of the strongest regional banks in Europe.”

Riegler continued: “Our owners, the Free State of Bavaria and the Bavarian savings banks, should also reap the benefits of our financial success. We therefore plan to distribute EUR 50 million to them.”

BayernLB posted low risk provisions in the credit business of just EUR -94 million (FY 2016:  EUR -87 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 reached a new best of 1.5 percent at the end of 2017 (FY 2016: 1.6 percent).

Net commission incomewas EUR 263 million (FY 2016: EUR 296 million). The decline stemmed primarily from lower earnings in DKB’s credit card business that was the outcome of lower interbank fees to card-issuing banks. Lower commission in the credit business was partly compensated by higher earnings in the securities business.

The gains or losses on fair value measurement item climbed to EUR 205 million from EUR 142 million in the year before. Gains or losses on financial investments were EUR 23 million (FY 2016: EUR 274 million). The previous year’s high figure was pushed up primarily by income from the sale of shareholdings.

Expenses for the bank levy and deposit guarantee scheme rose to a total of EUR 98 million (FY 2016: EUR 88 million). The bank levy accounted for EUR 52 million (FY 2016: EUR 51 million) and the contribution to the Savings Bank Finance Group joint liability scheme for EUR 46 million (FY 2016: EUR 37 million).    

BayernLB’s total assets were up slightly. They amounted to EUR 214.5 billion (FY 2016: EUR 212.1 billion) at the end of the year. BayernLB pared down its risk-weighted assets (RWA) to EUR 61.4 billion (FY 2016: EUR 65.2 billion), partly by further improving its portfolio.

At 59.9 percent, the cost/income ratio (CIR) remained within the target range (FY 2016: 59.3 percent). Return on equity (RoE) was 7.4 percent (FY 2016: 8.1 percent).

BayernLB’s sustained positive performance in the past few years and the success of its customer-focused business model was also confirmed by another rating upgrade in 2017. In April, Moody's rating agency raised BayernLB's long-term issuer rating one notch from A2 to A1. It was the third time Moody’s has upgraded the Bank’s rating since 2014.

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

At the end of June 2017, BayernLB repaid the last outstanding EUR 1 billion of silent partner contributions to the Free State of Bavaria. It was thus two and a half years ahead of schedule in meeting 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. The early repayment was made possible by BayernLB’s very strong business performance over the past few years and the solid capital base that goes with it.

 

New strategic initiatives to further boost BayernLB’s profitability

One of BayernLB’s key business policy components in 2018 and the following years is to implement various strategic initiatives to further increase the Bank’s earnings power. These may entail business with municipalities outside Bavaria and a moderate expansion of international activities in selected target markets, while leaving the Bank’s conservative risk profile unchanged. Going forward, BayernLB’s international business will remain clearly focused on supporting Bavarian and German corporate customers with their business activities abroad and assisting the Bavarian savings banks in performing international business for their customers. BayernLB expects its earnings power to increase considerably in the medium term in response to various measures it plans to implement.

Furthermore, the Bank sees business potential in the green finance segment, such as in financing climate protection projects and issuing “green” Schuldschein note loans and corporate bonds. BayernLB has a great deal of expertise in this area gathered over many years and won an award from the independent sustainability rating agency oekom research at the beginning of 2018 for its handling of social and environmental challenges, thus making it one of the top 10 banks worldwide in the oekom ranking.

 

Earnings in the operating business segments

Corporates & Mittelstand

In Corporates & Mittelstand, BayernLB posted operating earnings from net interest and net commission income of EUR 388 million (FY 2016: EUR 418 million). In the Mittelstand division, credit volume rose year on year. The decline in the segment’s profit before taxes to EUR -44 million (FY 2016: EUR 203 million) is primarily due to the creation of risk provisions. Operating business with Corporates and Mittelstand customers had a very good start to 2018.

 

Real Estate & Savings Banks/Association

Profit before taxes in the Real Estate & Savings Banks/Association segment was EUR 175 million (FY 2016: EUR 209 million). The Real Estate division made a major contribution to segment earnings with profit before taxes of EUR 137 million (FY 2016: EUR 127 million). Customer demand remained high, prompting another increase in the volume of new business acquired. BayernLB’s good liquidity and the resulting low funding requirements, in conjunction with the low interest rates, weighed on earnings in the Savings Banks & Association division. Profit before taxes here was EUR -15 million (FY 2016: EUR 0 million). BayernLabo, BayernLB’s development bank, reported stable earnings once again, after the previous year’s figure was boosted by measurement gains. Profit before taxes at BayernLabo was EUR 45 million (FY 2016: EUR 77 million).

 

DKB

The DKB segment continued to perform well in 2017. Net commission income rose again considerably to EUR 935 million (FY 2016: EUR 794 million). Profit before taxes was EUR 272 million (FY 2016: EUR 353 million). Earnings in the year before were, however, boosted significantly by proceeds of EUR 132 million from the sale of the stake in Visa Europe Ltd. Adjusted for the Visa transaction, earnings for financial year 2017 were up. DKB expanded its retail customer base again to 3.7 million (FY 2016: 3.4 million), thereby further consolidating its position as Germany’s second-largest online bank and one of the country’s market leaders in digital banking.

 

Financial Markets

Earnings in BayernLB’s Financial Markets business grew significantly and the segment posted profit before taxes of EUR 94 million (FY 2016: EUR 23 million). This was largely due to much higher net interest income of EUR 142 million (FY 2016: EUR 40 million) and to measurement gains on derivatives transactions. As usual, earnings from Financial Markets products on behalf of the other customer-serving business segments were reported under those segments. Despite the tough market environment, earnings in client-driven business remained stable on a par with the previous year.

 

Outlook

BayernLB expects its positive business performance of the past few years to continue in 2018 in spite of the extremely challenging economic environment. Geopolitical risks and changes in interest rates, exchange rates and the oil price will be factors fuelling uncertainty. Nevertheless, thanks to its strong customer relationships, BayernLB forecasts that it will once again post a profit before taxes in the mid triple-digit million range for full-year 2018.

The complete press release, including tables, is available in the download box.

The full consolidated financial report for financial year 2017 will be available for download in German and English from 13 April 2018.