- Results driven by good operating earnings performance in all segments, net positive risk provisions and the bonus from tender participation
- Capital base remains good: CET1 ratio of 15.6%
- Earnings forecast for financial year 2021 raised to EUR 500 to 700 million before taxes
- Fokus 2024 transformation programme on schedule
- Deposit guarantee scheme at DKB to be restructured
Munich – BayernLB posted profit before taxes of EUR 485 million in the first half of the year (H1 2020: EUR 158 million), with all the Group's operating segments contributing to this positive performance. The rise in earnings is largely due to higher net interest income than the year-before period, net positive risk provisions and better gains on fair value measurement. Consolidated profit (after taxes) was EUR 248 million (H1 2020: EUR 101 million).
“We’re happy with the course of business in the first half of the year, all of BayernLB’s customer segments have boosted their earnings considerably,” commented Stephan Winkelmeier CEO of BayernLB. “I’m particularly pleased that we managed to cut our administrative expenses, despite investing in growth at DKB and modernising BayernLB Bank’s IT landscape. Efforts to improve efficiency and streamline our processes as part of our Fokus 2024 transformation programme are bearing fruit. This will make our Group an even stronger partner to our customers,” continued Winkelmeier.
Financial data for the first half of the year: good performance
Net interest income jumped to EUR 1,006 million (H1 2020: EUR 873 million). The increase was driven mainly by growth in new business in line with strategy and participation in the ECB tenders (TLTRO III). The BayernLB Group produced net interest income of EUR 164 million in the first half of the year resulting from its utilisation of the TLTRO III reduced interest rates. Net commission income in the BayernLB Group rose to EUR 189 million (H1 2020: EUR 154 million) despite the difficult market environment. The increase largely stems from the high-commission lending business and the fund business of asset management subsidiaries Real I.S. and BayernInvest.
The risk provisions item significantly bolstered profit before taxes with net releases of EUR 44 million (H1 2020: net additions of EUR 75 million). The additions to risk provisions were more than offset by releases and recoveries on written-down receivables. In the same period of the previous year, the BayernLB Group posted additional risk provision expenses (post model adjustment) of EUR 48 million to cover the potential risks anticipated in connection with the coronavirus pandemic. In the regular review of these scenarios on 30 June 2021, it determined that it could release EUR 32 million of provisions; the remainder of the post model adjustment stood at EUR 292 million after the release. The NPL ratio, which reflects the share of non-performing loans in relation to the overall lending volume, fell to 0.5 percent (H1 2020: 0.6 percent).
Gains or losses on fair value measurement was up significantly on the year-before period at EUR 145 million (H1 2020: EUR 51 million). It was driven primarily by the positive earnings contribution from other financial transactions, especially from the precious metals business. Gains or losses on financial investments fell EUR 24 million to EUR 7 million (H1 2020: EUR 31 million).
Administrative expenses fell slightly to EUR 754 million (H1 2020: EUR 764 million). The rise in staff costs resulting from the growth initiatives at DKB and the related strategic increase in headcount was more than offset by the reduction in non-staff costs, while at BayernLB - Bank the defined staff cuts are reflected in lower staff costs. This shows that the cost-cutting measures of the transformation programme are being rigorously implemented. Expenses for the bank levy and deposit guarantee scheme climbed EUR 28 million to EUR 170 million (H1 2020: EUR 142 million). The bank levy accounted for EUR 75 million (H1 2020: EUR 68 million) and the contribution to the deposit guarantee scheme for EUR 95 million (H1 2020: EUR 74 million) of this amount.
Income tax expenses amounted to EUR 235 million in the first half of the year (H1 2020: EUR 56 million). The item comprised expenses of EUR 42 million (H1 2020: expenses of EUR 38 million) from the netting of current tax income and expenses, and expenses of EUR 193 million (H1 2020: expenses of EUR 18 million) from the netting of deferred tax income and expenses. The jump in deferred tax expenses was due to the revaluation of deferred taxes at the BayernLB Group based on the knowledge available as at 30 June 2021 regarding the ending of the control and profit and loss transfer agreement with DKB.
BayernLB’s total assets rose by 10.2 percent to EUR 282.4 billion (31 December 2020: EUR 256.3 billion). The increase was due in part to BayernLB's participation in the ECB tender. Risk-weighted assets (RWAs) stood at EUR 65.1 billion (31 December 2020: EUR 65.0 billion).
The Group continued to enjoy a solid capital base in the first half of the year, with a CET1 ratio as at 30 June 2021 of 15.6 percent (31 December 2020: 15.9 percent).
The cost/income ratio (CIR) was 55.3 percent (31 December 2020: 67.2 percent). Return on equity (RoE) before taxes jumped to 9.5 percent (31 December 2020: 3.2 percent).
Progress in the Fokus 2024 transformation programme
BayernLB is forging rigorously ahead with its multi-year transformation programme Fokus 2024 launched in January 2020, despite persistent operational challenges posed by the coronavirus pandemic. Consequently, the Bank achieved more key milestones of the transformation in the first half of 2021.
The process has also involved making major changes to the organisation and improvements to infrastructure, such as the new sector-based teamwork approach that was successfully initiated in the Corporates segment in January. To this end, the Bank has set up dedicated teams for its focus sectors – energy, mobility, technology, manufacturing & engineering, and construction & basic resources. These teams bring together experts from customer, project, analysis and research units to support customers with their financing needs by providing in-depth sector knowledge and major structuring expertise. BayernLB has also made progress when it comes to distribution and has successfully placed project and real estate finance with institutional investors. Likewise, the first half of 2021 saw the launch of the implementation project to modernise IT bank management.
In addition, BayernLB further streamlined its processes. This enabled the Group to reduce its administrative expenses overall, despite investing in growth at DKB, by cutting back on non-staff costs.
In 2021, the Bank also carried out its regular review of the long-term strategic target structure. It confirmed the strategy for all the business areas: to significantly grow DKB’s retail customer base, continually expand the real estate business and streamline business with corporate clients, focussing particularly on sectors of the future.
Stronger focus on sustainability: portfolio expanded
Under the auspices of its transformation, BayernLB is focusing its business activities even more firmly than ever on sustainability. In June 2021, BayernLB and DKB joined the Partnership for Carbon Accounting Financials (PCAF). The PCAF brings a standardised method to the table which BayernLB and DKB will use to calculate the emissions in their lending portfolios. Measuring greenhouse gas emissions is essential for managing the risk and sustainability aspects of the lending portfolio and gradually decarbonising it.
In addition, the BayernLB Group has successfully expanded its portfolio of sustainable refinancing instruments. Following several ESG issues by DKB and BayernLabo’s social bond, BayernLB has also added to the Group’s range of sustainable products. In the first half of the year, BayernLB launched the green commercial paper programme and placed its first green benchmark bond, followed by a green subordinated benchmark (Tier 2) bond, both with a volume of EUR 500 million.
On top of this, BayernLB has joined forces with four other Landesbanks and the Association of German Public Sector Banks (VÖB) to develop a new brand for green Schuldschein note loans. With the “Green Schuldschein”, the five market-leading banks in the segment, together with the Association, are setting a green quality standard for the widely used corporate finance instrument. Schuldschein note loans that bear this label will only provide financing with an environmental purpose. BayernLB is one of Germany’s pioneers in the field of green Schuldscheins.
Change in the deposit guarantee scheme at DKB
Deutsche Kreditbank AG (DKB) is an integral component of the BayernLB Group and, as an innovative digital bank, plays an important part in BayernLB’s commercial success. The following changes are due to take place with respect to its deposit guarantee scheme:
In issuing the Ordinance of 8 June 2021 on the statutory compensation scheme of the Bundesverband Öffentlicher Banken Deutschlands GmbH (EdÖ), the Federal Ministry of Finance ended its mandate as a statutory compensation scheme with effect from 1 October 2021.
The Institutions currently covered by this will thus be legally assigned to the Entschädigungseinrichtung deutscher Banken GmbH (EdB), a wholly-owned subsidiary of the Association of German Banks (BdB). As such, from 1 October DKB will also be assigned to the statutory compensation scheme EdB.
As a result of DKB’s move to the EdB, the relationship between DKB and BayernLB will change. BayernLB has revoked and terminated the letter of comfort for DKB effective from 30 November 2021. Customers that become new customers of DKB after 19 August 2021 are not permitted to utilise this letter of comfort from this date. The Bank also intends to end the control and profit and loss transfer agreement between BayernLB and DKB at the next possible date in 2021. In return, BayernLB will provide DKB with a substantial amount of additional capital so it can maintain a market-standard capital base even without BayernLB’s letter of comfort.
Solid results in the EBA banking stress test in July 2021
BayernLB has achieved solid marks in the latest EBA (European Banking Authority) stress test. It met the capital requirements in the stress scenario too.
In the baseline scenario the capital ratio (CET1) is 16.1 percent in 2023 and even in the hypothesised stricter crisis scenario BayernLB’s CET1 ratio is 10.0 percent. The stress scenario shows an economic and asset price-based shock due to the uncertainty about the course of the COVID-19 pandemic.
Earnings in the customer-serving operating segments
Profit before taxes in BayernLB’s Real Estate & Savings Banks/Association segment surged to EUR 155 million (H1 2020: EUR 117 million).
The Real Estate Division again made a significant contribution to the segment’s earnings with a profit before taxes of EUR 86 million (H1 2020: EUR 68 million). The improved profitability was due largely to an increase in net interest income to EUR 114 million (H1 2020: EUR 101 million) stemming from a hike in business volume. The division was also helped by slightly net positive risk provisions compared with the year-before period, when it posted net negative risk provisions of EUR 9 million, partly to cover expected losses resulting from the coronavirus pandemic.
The Savings Banks & Financial Institutions Division once again turned in a higher profit before taxes of EUR 30 million (H1 2020: EUR 25 million). Earnings from net interest and commission income were up on the previous year at EUR 73 million (H1 2020: EUR 64 million), due to the sustained positive trend in state-subsidised business. Gains or losses on fair value measurement benefited once again from the very positive performance in the precious metals business. Administrative expenses were pared back to EUR 81 million (H1 2020: EUR 87 million), largely owing to the streamlining of the Bank through the transformation programme.
BayernLabo, BayernLB’s development bank, posted an increase in profit before taxes to EUR 19 million (H1 2020: EUR 12 million), while pretax profit at Real I.S. jumped to EUR 17 million (H1 2020: EUR 9 million). Profit before taxes at BayernInvest stood at EUR 3 million (H1 2020: EUR 2 million), also an improvement on the year-before period.
The Corporates & Markets segment generated a profit before taxes of EUR 97 million (H1 2020: loss before taxes of EUR 5 million). The main reason for this was the marked drop in net risk provisions. The year-before period saw additions of EUR 65 million, partly to cover expected losses resulting from the coronavirus pandemic. In the first half of this year, additions amounted to only EUR 1 million. In addition, combined net interest and net commission income rose to EUR 206 million (H1 2020: EUR 188 million), driven by good customer business. Administrative expenses in the segment fell back to EUR 144 million (H1 2020: EUR 167 million) largely owing to the streamlining in the capital market business.
Profit before taxes surged in the DKB segment too; as at 30 June 2021 it stood at EUR 273 million (H1 2020: EUR 115 million). The DKB sub-group accounted for the majority of this with EUR 267 million (H1 2020: EUR 114 million).
Combined net interest income and net commission income climbed to EUR 575 million (H1 2020: EUR 470 million), bolstered in particular by favourable funding conditions and higher net commission income, partly as a result of the jump in securities transactions in the retail customer business. Risk provisions were a net positive EUR 33 million (H1 2020: EUR 2 million) as a result of net releases including from the post model adjustment. The remainder of the post model adjustment as at 30 June 2020 amounted to EUR 87 million.
DKB expanded its retail customer base to around 4.8 million (H1 2020: approximately 4.5 million), thereby further consolidating its position as Germany’s second-largest online bank and one of the country’s market leaders in digital banking. To secure and expand the Group’s position in the market for the long term, more investment was made in sales and distribution, digitalisation and increasing headcount. Nevertheless, administrative expenses of EUR 326 million remained roughly on a par with the previous year (H1 2020: EUR 316 million).
Profit before taxes at subsidiary Bayern Card-Services (BCS), which belongs to the segment, advanced to EUR 4 million (H1 2020: EUR 1 million) due to positive one-off effects. Earnings from business operations remained stable. The number of cards served rose by about 5 percent on the previous year to 11.7 million.
Outlook for full-year 2021
BayernLB is revising its previous forecast upwards and expects to post a positive profit before taxes of EUR 500 to 700 million for full-year 2021. As it is unclear how the pandemic will unfold, this forecast is fraught with a high level of uncertainty.
Additional details on the BayernLB Group's financial figures in the first half of 2021 can be found in the supplementary IR presentation and in the Group Financial Report as at 30 June 2021. Both documents can be downloaded at www.bayernlb.com.