- Net interest and net commission income on par with H1 2018 at over EUR 1 billion
- DKB and real estate business are key earnings drivers
- Earnings boosted by one-off income, which was, however, lower than the year-before period
- Good portfolio quality results in low risk provisions; NPL ratio remains very low at 0.7 percent
- CET1 ratio at an adequate 14.1%
Munich - BayernLB continued to put in a solid performance in the first six months of 2019, posting profit before taxes of EUR 315 million (H1 2018: EUR 452 million). The main drivers of these earnings were the activities at DKB and in the real estate business. At the same time, business with corporates, savings banks and the public sector, and financial institutions also performed satisfactorily. The Bank additionally benefitted from one-off income, although this came out lower than the year-before period, which was boosted by non-recurring items.
“We have achieved pleasing half-yearly results in line with expectations, despite the still hugely challenging market environment,” commented the new CEO of BayernLB Stephan Winkelmeier on the Bank's performance in the first half of 2019. “Against the backdrop of long-term unfavourable interest rates and the initial signs of an economic slowdown, we will invest even more energy in focusing our business. A first step in this direction is to merge our capital market business with our corporate customer units, which is currently underway,” added Winkelmeier.
Consolidated profit(after taxes) was EUR 294 million (H1 2018: EUR 342 million). The capital ratio (CET1 ratio) was 14.1 percent, which is appropriate considering the good portfolio quality. Return on equity (RoE) stood at 6.5 percent (H1 2018: 10.0 percent). The cost/income ratio (CIR) was up on the year-before period at 61.2 percent (H1 2018: 59.5 percent) as a result of increased capex and persistently high regulatory requirements.
Combined net interest and net commission income was unchanged year on year at over a billion euros (EUR 1,011 million). Net interest income stood at EUR 870 million (H1 2018: EUR 879 million), whilenet commission income climbed seven percent to EUR 141 million (H1 2018: EUR 132 million).
BayernLB continues to benefit from its conservative risk policy and posted very low risk provisions in the credit business of a negative EUR 10 million (H1 2018: a positive figure of EUR 103 million). The figure for the year-before period was boosted by high releases and recoveries on written down receivables. The NPL ratio remains unchanged at a very low 0.7 percent.
Gains or losses on fair value measurementwas a negative EUR 23 million, primarily due to the measurement of cross-currency swaps (H1 2018: EUR 35 million). Conversely gains or losses on hedge accounting improved from EUR -44 million in the previous year to EUR -7 million.
As in the previous year, gains or losses on financial investments (EUR 50 million) was mainly impacted by sales proceeds from securities (H1 2018: EUR 33 million).
Administrative expensesrose to EUR 713 million (H1 2018: EUR 644 million). This was primarily due to higher costs of meeting regulatory requirements, strategic sales initiatives and Group-wide investment to digitalise the business and operating model.
Expenses for the bank levy and deposit guarantee schemecomprised a total charge of EUR 119 million (H1 2018: EUR 90 million).This included EUR 56 million for the bank levy (H1 2018: EUR 52 million) and a EUR 63 million contribution to the Savings Banks Finance Group deposit guarantee scheme (H1 2018: EUR 38 million).
Other income and expenses amounted to EUR 130 million (H1 2018: EUR 52 million), largely as a result of a one-off tax-related gain.
BayernLB grew both its lending business and money market transactions with customers, which in turn boosted risk-weighted assets (RWAs) and total assets. As at 30 June BayernLB’stotal assets amounted to EUR 240.3 billion (an increase of 9.1 percent on the end of 2018), while RWAs edged up just short of 3 percent to EUR 67.6 billion.
Earnings in the customer-serving operating segments
In the Corporates & Mittelstand segment, profit before taxes was EUR 57 million (H1 2018: EUR 181 million). The decline on the year-before period is largely due to lower releases of risk provisions. The high net positive risk provisions of EUR 125 million in H1 2018 (financial year 2019: EUR 9 million) were primarily on account of high releases and a high volume of recoveries on written down receivables. Despite the great pressure on margins and tough competitive environment, the Group managed to keep net interest and net commission income at a stable level of EUR 184 million (H1 2018: EUR 184 million) by increasing volumes. Likewise, earnings from Financial Markets’ capital market products were virtually unchanged year on year.
TheReal Estate & Savings Banks/Association segment considerably outperformed the earnings of the previous-year period with profit before taxes of EUR 105 million (H1 2018: EUR 73 million). A large portion of the segment’s earnings once more came from the Real Estate Division, which posted EUR 79 million (H1 2018: EUR 57 million). The growth was also the result of higher net interest and net commission income, up EUR 8 million to EUR 100 million. Customer demand remained high and the volume of acquired new business was once again higher than the year-before period. Owing to releases, the segment also posted net positive risk provisions of EUR 18 million (H1 2018: a negative EUR 5 million).
The Financial Markets segment posted a profit before taxes of EUR 15 million (H1 2018: EUR 21 million). The year-before period was boosted by measurement gains, especially at Group Treasury. Net interest and commission income rose to EUR 125 million (H1 2018: EUR 100 million) and was mainly due to transactions with financial institutions and from higher interest income at Group Treasury, partly with countereffects arising from measurement gains. Income from the customer business was slightly higher compared with the previous year despite ongoing stiff competition. This income is reported under the relevant customer segments. Administrative expenses in the segment of EUR 111 million were on par with the previous-year (H1 2018: EUR 110 million).
The DKB segment reported profit before taxes of EUR 147 million, but as expected was unable to match the very good performance of the previous year (H1 2018: EUR 204 million). Net interest income was lower than in the previous year at EUR 480 million (H1 2018: EUR 511 million). This was mainly due to the persistently low to negative interest rate environment. Expenses for risk provisions stood at EUR 42 million (H1 2018: EUR 23 million) because higher risk provisions were required in certain cases. This was an increase on the previous year but in line with expectations. DKB further consolidated its position as Germany’s second-largest online bank and increased its customer base to some 4.2 million (H1 2018: 3.9 million). Administrative expenses increased to EUR 288 million (H1 2018: EUR 248 million), mainly as a result of higher regulatory costs and strategic investment in digitalisation and customer support.
Outlook for full-year 2019
BayernLB abides by its previous forecast and still expects to post a profit before taxes in the mid-triple-digit million range for full-year 2019. With a view to the persistently negative interest rates and the economic slowdown, which are weighing on operating activities, BayernLB will focus much more closely on systematic cost management as part of its ongoing strategy project.