- Stable operating performance: net interest income on par with year-before period, net commission income higher
- Risk provisions raised to EUR 175 million to cover potential risks from the coronavirus pandemic
- Strategic investments, particularly in IT infrastructure, cause rise in administrative expenses
- Transformation continues on schedule despite operational challenges from the coronavirus pandemic
- Solid capital base: CET 1 ratio at 15.6 percent
Munich – BayernLB posted profit before taxes of EUR 276 million in the first nine months of 2020 (9M 2019: EUR 433 million). Combined net interest and net commission income was up slightly on the year-before period at over EUR 1.5 billion.
“Despite the major challenges posed by the coronavirus pandemic, our operating earnings power has remained stable,” commented BayernLB CEO Stephan Winkelmeier. “We are not letting our Fokus 2024 transformation programme be slowed down either. We are progressing as planned and have already achieved key milestones. We stand by our customers as a reliable, stable partner during the coronavirus crisis,” continued Winkelmeier.
To ensure its customers are provided with liquidity, even through the pandemic, BayernLB has simplified aspects of its credit processes and increased consulting capacity, especially for programmes offered by the state development banks. Up to 30 September, the Bank processed around 8,300 applications for subsidies with a volume of more than EUR 2.5 billion solely from the coronavirus programmes, primarily in its proven close cooperation with the Bavarian savings banks.
Financial data for the first nine months of 2020
Despite the persistently unfavourable interest rate environment, the BayernLB Group’s net interest income was on par with the year-before period at EUR 1,324 million (9M 2019: EUR 1,292 million). Net commission income climbed approximately 9 percent to EUR 224 million (9M 2019: EUR 205 million), buoyed largely by new business.
To cover the potential risks in connection with the coronavirus, BayernLB increased risk provisions to EUR 175 million (9M 2019: EUR 8 million), although so far the Bank has not had any notable cases with acute risk provisioning requirements. The figure in the year-before period was marked 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 0.6 percent.
Gains or losses on fair value measurement climbed to EUR 73 million (9M 2019: a loss of EUR 29 million). The increase is mainly due to the good performance of the precious metals business. Gains or losses on hedge accounting was EUR 0 million (9M 2019: a loss of EUR 11 million). Gains or losses on financial investments amounted to EUR 62 million (9M 2019: EUR 67 million). As in the previous-year period, a large portion of this resulted from proceeds from the sale of securities.
Strategic investments, particularly to modernise IT at BayernLB and DKB, were a major factor in increasing administrative expenses to EUR 1,135 million (9M 2019: EUR 1,078 million). In operational terms, measures in relation to the transformation programme achieved initial cost savings, primarily at BayernLB core Bank. Expenses for the bank levy and deposit guarantee scheme rose by EUR 27 million to a total of EUR 150 million. This comprised EUR 67 million for the bank levy (9M 2019: EUR 56 million) and EUR 83 million in contributions to de-posit guarantee schemes (9M 2019: EUR 68 million).
BayernLB’s total assets rose by 17.5 percent to EUR 265.6 billion (31 December 2019: EUR 226.0 billion). The increase is mainly due to BayernLB's participation in the ECB's long-term tenders and the increase in the subsidised loan business.
Risk-weighted assets (RWAs) stood at EUR 65.0 billion (31 December 2019: EUR 64.6 billion).
The Group continued to enjoy a solid capital base in the first nine months of the year, with a CET1 ratio as at 30 September 2020 of 15.6 percent (31 December 2019: 15.6 percent).
The cost-income ratio (CIR) was 65.4 percent (9M 2019: 65.3 percent). Return on equity (RoE) was 3.7 percent (9M 2019: 6.0 percent).
Progress in the transformation programme
Despite operational challenges posed by the coronavirus pandemic, the BayernLB Group is forging ahead as planned with its extensive, multi-year transformation programme Fokus 2024 launched in January 2020. BayernLB has achieved key project milestones in the past few months and, for example, launched various IT modernisation projects in the core Bank and DKB. In addition, it has taken initial measures to improve earnings and profitability in the Group’s business areas and implemented the first efficiency initiatives in all units of the Bank, including, for example, redesigning the credit process and optimising trading and transaction processes. The core Bank is on schedule with reducing its operating costs.
Earnings in the customer-serving operating segments
BayernLB reorganised its operating segments at the beginning of financial year 2020 and now reports the earnings from customer business in three instead of the previous four segments. The previous-year figures provided have been ad-justed accordingly.
BayernLB increased operating income in the Real Estate & Savings Banks/Financial Institutions segment. Combined net interest and net commission income rose to EUR 413 million (9M 2019: EUR 391 million). The increase is mainly due to encouraging new business in the Real Estate Division and very good business in precious metals. Profit before taxes of EUR 140 million in the segment was nevertheless down on the year-before period (9M 2019: EUR 165 million). The decline is largely the result of additions to risk provisions, partly in relation to the coronavirus pandemic, while the year-before period was marked by high releases. BayernLabo, BayernLB’s development bank for residential construction, posted lower profit before taxes than in the year-before period, primarily due to measurement losses on interest hedges. It came in at EUR 24 million (9M 2019: EUR 41 million). Real I.S.’s profit before taxes remained stable at EUR 15 million (9M 2019: EUR 15 million). Market volatility and IT in-vestments weighed on profit before taxes at BayernInvest, which amounted to EUR 2 million (9M 2019: EUR 7 million).
In the Corporates & Markets segment, which now combines business with corporate customers and BayernLB's capital market activities, net interest and net commission income also rose. Driven mainly by good margin performance, the segment’s combined net interest and net commission income amounted to EUR 290 million (9M 2019: EUR 278 million). In addition, gains or losses on fair value measurement climbed to EUR 52 million (9M 2019: EUR 11 million), despite the turmoil caused by the coronavirus pandemic. This very good performance was, however, overshadowed by an increase in risk provisions to EUR 165 million (9M 2019: EUR 0 million). The risk provisions established are mainly to cover potential risks from the coronavirus pandemic, although the Bank has so far not recorded any notable cases with acute risk provisioning requirements. Profit before taxes stood at a negative EUR 70 million (9M 2019: EUR 19 million). The segment’s administrative expenses fell to EUR 254 million (9M 2019: EUR 274 million), attributable to the Bank’s streamlining strategy. BayernLB supported numerous transactions in the capital market business in the first nine months of 2020. These included, for example, the first social bond by the City of Munich and a bond by the Free State of Bavaria, which was the largest ever issue by the state with a volume of EUR 3 billion. BayernLB has been one of the top banks for Schuldschein note loans and corporate and public-sector bonds for some years.
Investment in IT infrastructure and sales at DKB resulted as expected in a slight drop in profit before taxes to EUR 234 million (9M 2019: EUR 241 million). Combined earnings from net interest and net commission income remained stable at EUR 710 million (9M 2019: EUR 710 million). In addition, positive risk provisions and gains on measurement of equity investments contributed to earnings. Profit before taxes at Bayern Card-Services (BCS), a subsidiary belonging to the segment, was on par with the year-before period at EUR 2 million (9M 2019: EUR 2 million). DKB expanded its retail customer base to more than 4.5 million (9M 2019: approximately 4.2 million, thereby further consolidating its position as Germany’s second-largest online bank and one of the country’s market leaders in digital banking.
Outlook for full-year 2020
As it currently stands, BayernLB expects profit before taxes to be positive for financial year 2020 – nevertheless the coronavirus pandemic and the related challenges are the source of exceptionally high uncertainty. The negative impact on global economic output will be considerable and will be greater the longer the pandemic continues.