- Net interest and net commission income on par with 9M 2018 at approx. EUR 1.5 billion
- One-off income substantially lower than in the previous year
- Segments with mixed performance; DKB and real estate business are key earnings drivers
- Capital base still solid: CET1 ratio of 14.5 percent
- Good portfolio quality results in low risk provisions; NPL ratio remains very positive at 0.7 percent
- Cost/income ratio (CIR) still in the target range at 65.3 percent
- Full-year forecast unchanged: profit before taxes in the mid-triple-digit million range
Munich – The BayernLB Group posted profit before taxes of EUR 433 million in the first nine months of 2019 (9M 2018: EUR 716 million). Net interest and net commission income remained stable year on year at a combined EUR 1,497 million (9M 2018: EUR 1,474 million). DKB and BayernLB’s real estate business proved their mettle once again as strong earnings pillars for the Group. The figures were additionally buoyed by one-off income, although this came out much lower than in the year-before period, in which earnings were inflated by nonrecurring items. The Bank posted consolidated profit (after taxes) of EUR 394 million (9M 2018: EUR 564 million).
“Despite the huge challenges for the banking sector, BayernLB performed in line with expectations in the first nine months of 2019,” commented BayernLB’s CEO Stephan Winkelmeier. “To keep up this success going forward, we are currently conducting a strategy project to realign our business model. Some future focal points are already emerging now that our capital market business has been merged with our corporate customer units. While we will concentrate more close-ly on specific parts of our capital market business, we will also seize the growth opportunities in our earnings drivers, these being essentially DKB and the com-mercial real estate business,” continued Winkelmeier.
BayernLB's capital base remains solid, with CET1 capital amounting to EUR 9.9 billion (31 December 2018: EUR 10.0 billion) and a capital ratio (CET1 ratio) of 14.5 percent (31 December 2018: 15.2 percent). Return on equity (RoE) was 6.0 percent (9M 2018: 10.5 percent).
Net interest income was EUR 1,292 million (9M 2018: EUR 1,282 million) and net commission income amounted to EUR 205 million (9M 2018: EUR 192 million).
In risk provisions in the credit business, BayernLB continued to benefit from its conservative risk policy and posted a very low figure of EUR -8 million (9M 2018: EUR 122 million). The figure for the year-before period was boosted by high releases and recoveries on written down receivables. The NPL ratio, which reflects the share of non-performing loans in relation to the overall lending volume, was still at a very low 0.7 percent.
Gains or losses on fair value measurement came to EUR -29 million (9M 2018: EUR 166 million). The decline on the year-before period was driven in part by unfavourable market performance and the mark-to-market value of cross-currency swaps. Gains or losses on hedge accounting amounted to EUR -11 million (9M 2018: EUR -51 million). Gains or losses on financial investments was on par with the year-before period at EUR 67 million (9M 2018: EUR 37 million).
Administrative expenses climbed to EUR 1,078 million (9M 2018: EUR 982 million), with the increase predominantly due to strategic investments in sales and Group-wide digitalisation initiatives, in addition to higher costs for meeting regulatory requirements. The cost/income ratio (CIR) was up year on year at 65.3 percent (9M 2018: 58.7 percent), although it remained in the target range. In light of the current cost/income ratio and the persistently challenging market environment, it is clear that BayernLB will take additional measures to cut costs in the coming year. The details of these will be worked out in the ongoing strategy project.
Expenses for the bank levy and deposit guarantee scheme comprised a total charge of EUR 123 million (9M 2018: EUR 98 million). The bank levy accounted for EUR 55 million (9M 2018: EUR 51 million) and the contribution to the Savings Bank Finance Group joint liability scheme for EUR 68 million (9M 2018: EUR 47 million).
The BayernLB Group’s total assets increased to EUR 244.2 billion (31 December 2018: EUR 220.2 billion). This rise was due to growth in BayernLB’s lending business and money market business with customers. It also pushed up risk-weighted assets (RWAs) to EUR 68.3 billion (31 December 2018: EUR 65.6 billion).
Earnings in the customer-serving operating segments
In Corporates & Mittelstand profit before taxes fell to EUR 64 million (9M 2018: EUR 222 million). The reasons for the decline were high releases of risk provisions and recoveries on written down receivables which boosted earnings in the year-before period. The challenging market environment with its stiff competition and related margin erosion continued to make itself felt in the segment; operating earnings remained unchanged year on year. Net interest income came in at EUR 197 million (9M 2018: EUR 199 million), while net commission income was EUR 78 million (9M 2018: EUR 80 million).
Real Estate & Savings Banks/Association posted positive operating performance. This was most evident in net interest and net commission income, which surged to a combined EUR 311 million (9M 2018: EUR 285 million). The growth was mainly driven by good new business in the Real Estate Division. Profit before taxes stood at EUR 151 million (9M 2018: EUR 208 million); in the year-before period earnings had been boosted by positive one-off income from a restructuring exposure. BayernLabo, BayernLB’s development bank, posted an increase in earnings to EUR 41 million (9M 2018: EUR 33 million). Earnings at Real I.S. were also higher, jumping to EUR 15 million (9M 2019: EUR 9 million).
Profit before taxes in Financial Markets dropped to EUR 10 million (9M 2018: EUR 30 million). This change reflects the tough market and stiff competition in the Financial Markets business. Measurement losses also weighed on earnings, while the year-before period included measurement gains. As usual, earnings from financial market products attributable to customer business were reported under those segments and were slightly up on the year-before period. Profit before taxes at BayernInvest rose to EUR 7 million (9M 2018: EUR 5 million).
DKB produced profit before taxes of EUR 241 million and thus, as anticipated, fell short of the very high profit before taxes in the year-before period (9M 2018: EUR 292 million). Net interest income fell slightly to EUR 718 million (9M 2018: EUR 733 million). This was, however, in line with expectations due to the tightening in the interest margin as a result of market pressure. In addition, administrative expenses in the segment were pushed up by strategic investments in digitalisation and higher costs for faster-than-planned customer growth. This expansion enabled DKB to further consolidate its position as the second-largest online bank on the German market and boost its customer base to 4.2 million (9M 2018: 3.9 million).
Outlook for full-year 2019
Although the persistent negative interest rate environment and economic slowdown are weighing on operating earnings, 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.