- Net interest and net commission income rise collectively to more than EUR 2 billion
- Earnings boosted by one-off income and positive net risk provisions
- All customer segments make positive contributions to earnings
- NPL ratio reaches a new best at EUR 0.8 percent
- Very solid capital base: CET1 ratio of 15.2 percent
- Bank plans to distribute EUR 175 million to owners
- Outlook for full year 2019: BayernLB expects earnings in the mid triple-digit million range
Munich - BayernLB has posted profit before taxes of EUR 869 million for financial year 2018, up 33.3 percent on the year before (FY 2017: EUR 652 million). Consolidated profit (after taxes) rose to EUR 822 million (FY 2017: EUR 677 million), with all customer segments making a positive contribution. Earnings were also lifted by one-off income and positive net risk provisions.
“BayernLB can look back on a successful year. Even though the results are boosted by various one-off factors, they are clear proof of our operating strength in customer business,” commented BayernLB’s deputy CEO Dr Edgar Zoller. “Our shareholders should also reap the benefits of the Bank’s financial success, which is why we plan to pay a dividend of EUR 175 million. However, the good results are no reason for us to rest on our laurels. We will be working in 2019 from a position of strength on BayernLB's future strategic direction, in order to optimally position the Group for the future in the interests of our customers and owners,” continued Zoller.
Net interest and net commission income collectively increased to over EUR 2 bn for the first time in 2018. Despite persistently low interest rates, net interest income rose 5.0 percent to EUR 1,742 million (FY 2017: EUR 1,659 million). This is mainly due to the reduction in interest expenses at BayernLB and DKB. Net commission income was up slightly at EUR 270 million (FY 2017: EUR 263 million).
Risk provisions in the credit business at BayernLB were a positive EUR 135 million (FY 2017: EUR -94 million). This figure demonstrates the high quality of BayernLB’s lending portfolio. However, this cannot be compared directly with 2017’s figure, as from financial year 2018 risk provisions have been calculated on the basis of the new regulations under IFRS 9, which in some respects differ considerably from the previous rules.
BayernLB works continually to improve the quality of its lending portfolio. Accordingly, the share of non-performing loans (NPL) decreased further. The NPL ratio, which illustrates the share of non-performing loans as a proportion of the total credit volume, reached a new best of 0.8 percent at the end of 2018.
Gains or losses on fair value measurement were EUR 151 million (FY 2017: EUR 205 million) while gains or losses on hedge accounting stood at EUR -50 million (FY 2017: EUR -142 million). This includes the mark-to-market value of underlying transactions and their hedges, the differences in value of which balance out over the terms of the instruments. Gains or losses on financial investments, which mainly comprises income from the sale of bonds, notes and fixed-income securities, amounted to EUR 10 million (FY 2017: EUR 23 million).
Administrative expenses rose to EUR 1,356 million in 2018 (FY 2017: EUR 1,258 million). This increase was partly due to BayernLB employing additional staff to work on the strategic growth areas and meet the steadily growing regulatory requirements.
Expenses for the bank levy and deposit guarantee scheme were EUR 103 million (FY 2017: EUR 98 million). The charge included EUR 52 million for the bank levy (FY 2017: EUR 52 million) and EUR 51 million for the contribution to the Savings Bank Finance Group deposit guarantee scheme (FY 2017: EUR 46 million).
BayernLB’s total assets increased slightly to EUR 220.2 billion (FY 2017: EUR 214.5 billion). Risk-weighted assets (RWAs) stood at EUR 65.6 billion (FY 2017: EUR 61.4 billion).
BayernLB's capital adequacy remains very solid, with the relevant “fully loaded” CET1 ratio amounting to 15.2 percent (FY 2017: 15.3 percent).
At 61.9 percent, the cost/income ratio (CIR) remained within the target range (FY 2017: 59.9 percent), while BayernLB’s return on equity (RoE) rose to 9.4 percent (FY 2017: 7.4 percent).
Distribution to the owners
BayernLB’s owners, the Free State of Bavaria and the Bavarian savings banks, should also reap the benefits of its financial success. The Bank therefore intends to propose to its Annual General Meeting that it distribute EUR 175 million to its owners. The dividend in the previous year was EUR 50 million.
Earnings in the operating business segments
Corporates & Mittelstand
Profit before taxes in BayernLB’s Corporates & Mittelstand segment more than doubled to EUR 161 million (FY 2017: EUR 80 million). This increase is due in large part to the positive contribution from risk provisions, which were boosted by persistently good portfolio quality resulting in high releases, and by recoveries on written down receivables. Net interest income declined to EUR 265 million (FY 2017: EUR 281 million), dampened by stiff competition in the market. Net commission income, by contrast, rose to EUR 108 million (FY 2017: EUR 100 million). Income generated with Financial Markets’ capital market products also grew. The credit volume increased substantially year on year, rising to EUR 55 billion (FY 2017: EUR 51 billion).
Real Estate & Savings Banks/Association
Profit before taxes in Real Estate & Savings Banks/Association far exceeded that of the previous year, jumping to EUR 284 million (FY 2017: EUR 203 million). The Real Estate Division once again made a significant contribution to the segment’s earnings with profit before taxes of EUR 243 million (FY 2017: EUR 165 million). Customer demand remained high and the volume of acquired new business was up year on year once again. This translated into higher earnings from net interest and net commission income, which rose EUR 5 million to EUR 191 million. In addition, earnings benefited from the sale of a restructuring exposure. Operating earnings in the Sparkassen & Association Division also climbed as a result of more intense sales activities. The Division nevertheless reported a loss before taxes of EUR 18 million, which was below the previous year (FY 2017: loss before taxes of EUR 14 million). The main factors for this negative performance were good levels of liquidity in the BayernLB Group, which cut funding needs, and low interest rates, which dampened demand for capital market products. Earnings at BayernLabo, BayernLB’s development bank, remained stable at EUR 45 million (FY 2017: EUR 45 million). The real estate asset manager Real I.S. posted profit before taxes of EUR 13 million (FY 2017: EUR 8 million).
The Financial Markets segment posted a profit before taxes of EUR 12 million (FY 2017: EUR 99 million). It must be borne in mind that the previous year’s figures were buoyed considerably by one-off income and measurement gains. In addition, the tough market conditions pushed down income from Financial Markets products to below the previous year. As usual, earnings from these products on behalf of the customer-serving business segments were reported under those segments. BayernInvest posted profit before taxes of EUR 7 million (FY 2017: EUR 6 million).
DKB continued to perform well. Profit before taxes rose to EUR 317 million (FY 2017: EUR 272 million), mostly due to the increase in net interest income achieved as a result of an improved funding structure. DKB expanded its retail customer base again considerably to more than 4 million (FY 2017: 3.7 million), thereby further consolidating its position as Germany’s second-largest online bank and one of the country’s market leaders in digital banking. Subsidiary Bayern Card-Services, which falls under this segment, posted profit before taxes of EUR 14 million (FY 2017: EUR 7 million), while operating performance remained stable. This increase is mostly due to the sale of an equity interest.
As a result of its good portfolio quality and stable customer base, BayernLB expects solid business performance to continue in 2019 and predicts positive results with profit before taxes in the mid triple-digit million range.
The complete press release, including tables, is available in the download box.
The full consolidated financial report for financial year 2018 will be available for download in German and English from 12 April 2019.