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Munich – BayernLB has posted a profit before taxes of EUR 877 million for the first half of 2023 (H1 2022: EUR 277 million). The results were mainly driven by good operating earnings in all customer segments and the current interest rate environment. Consolidated profit (after taxes) stood at EUR 593 million (H1 2022: EUR 175 million).
“The first half of 2023 proved very robust for BayernLB’s business. Our Group’s strategic alignment is paying off and we increased our earnings significantly. All customer segments made a strong contribution, and in addition, we benefited from a kind of one-off economy generated by the interest rate pivot in the first six months,” commented Stephan Winkelmeier, CEO of BayernLB.
Net interest income of the BayernLB Group jumped to EUR 1,555 million (H1 2022: EUR 928 million). Of this amount, EUR 1,041 million (H1 2022: EUR 523 million) related to DKB and EUR 513 million (H1 2022: EUR 405 million) to BayernLB. The increase was due largely to the higher interest rates and further volume growth in the customer business in line with strategy. Net commission income rose to EUR 230 million (H1 2022: EUR 219 million), bolstered by good lending business in the Corporates Division at BayernLB and positive earnings from the card business and payment services at DKB.
In the first half of 2023, BayernLB posted a net increase in risk provisions of EUR 16 million (HY 2022: net fall of EUR 46 million). Risk provisions of EUR 105 million were created, predominantly in relation to real estate. These include an increase in the post-model adjustment (PMA), which is used as a supplementary instrument to take adequate account of potential macroeconomic developments when calculating risk provisions under IFRS 9. In the first half of the year, BayernLB elevated this PMA to EUR 395 million (31 December 2022: EUR 362 million). The additions to risk provisions were partly offset by recoveries on written down receivables (including EUR 78 million for HETA).
The NPL ratio, which reflects the share of non-performing loans in relation to the overall lending volume, remained low at 0.7 percent (31 December 2022: 0.6 percent). This reflects the BayernLB Group’s high portfolio quality.
Gains or losses on fair value measurement jumped to EUR 89 million (H1 2022: loss of EUR 9 million), buoyed by good operating customer business, especially with financial markets products and in precious metals, and by measurement gains on DKB’s own funds investments. Other earnings components were a negative EUR 101 million (H1 2022: a negative EUR 18 million), mainly due to losses on securities and interest hedging transactions .as a result of the sharp rise in interest rates.
Administrative expenses of the BayernLB Group were slightly down on the year-before period at EUR 782 million (H1 2022: EUR 787 million). Of this amount, BayernLB and DKB accounted for EUR 391 million each (H1 2022: EUR 417 million and EUR 370 million respectively). The continued reduction in the cost base at BayernLB core Bank is the result of cost cutting under the Fokus 2024 transformation programme. The increase at DKB comes from expenses in relation to its growth strategy.
Expenses for the bank levy and deposit guarantee scheme fell to EUR 95 million (H1 2022: EUR 132 million).
The mandatory contribution for the bank levy went down compared with the previous year to EUR 70 million (H1 2022: EUR 103 million), with EUR 35 million each relating to both BayernLB and DKB. This was because of the reduction in the target volume of the Single Resolution Fund.
The mandatory contribution for the deposit guarantee scheme dropped to EUR 25 million, with DKB accounting for the full amount. BayernLB has achieved its target volume for the deposit guarantee scheme since financial year 2021.
The BayernLB Group’s total assets rose to EUR 273.1 billion (31 December 2022: EUR 259.3 billion). Risk-weighted assets (RWAs) stood at EUR 64.0 billion (31 December 2022: EUR 65.3 billion).
The Group continued to enjoy a very good capital base in the first half of the year, with a CET1 ratio as at 30 June 2023 of 17.6 percent (31 December 2022: 17.4 percent).
The cost/income ratio (CIR) improved considerably to 44.1 percent from 70.3 percent in the year before period. Return on equity (RoE) climbed to 15.7 percent (H1 2022: 5.2 percent).
Over the first half of 2023 BayernLB continued to push ahead rigorously with its Fokus 2024 multi-year transformation programme launched in January 2020 and will conclude it as planned by the end of the year. A number of projects were completed successfully and ahead of schedule in the first half of 2023, including the project to reduce the cost base of the core Bank and all the projects relating to sales activities in the individual segments of the Bank.
The successes of the transformation programme are already clearly evident. In the Corporates & Markets segment the focus on sectors of the future is paying off, which came to bear in the continued good earnings in the first six months of 2023. Despite a lower volume of new business due to the current market situation, BayernLB is standing by its earnings target for the Real Estate Division for 2023, partly as a result of changes in interest rates. On 1 July BayernLB opened a real estate office in Amsterdam, in a bid to generate additional business in the already important Netherlands market going forward. The Bank expects higher-than-forecast business performance in the Savings Banks & FI Division; BayernLB has acquired various savings banks as cooperation partners in its foreign notes and coins and precious metals business.
DKB held onto its goal of profitable growth in the first half of 2023 and is stead-fastly pursuing its customer-focused path to become a tech bank.
BayernLB also made progress with its goal of focusing its business activities more closely on sustainability. More than 30 percent of the credit volume in both corporates and real estate business now complies with ESG guidelines.
BayernLB has achieved solid marks in the EU-wide 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 2025 and in the hypothesised stricter crisis scenario BayernLB’s CET1 ratio is 9.1 percent and the leverage ratio 3.1 percent. The stress scenario shows an economic and asset price-based shock due to an increase in geopolitical tensions in combination with a resurgence of the Covid-19 pandemic.
Profit before taxes in the Real Estate & Savings Banks/Financial Institutions segment rose slightly to EUR 122 million (H1 2022: EUR 112 million). Operating earnings in the segment increased, offsetting the higher risk provisions. Net interest income surged to EUR 244 million (H1 2022 EUR 186 million), driven predominantly by the current market interest rates. Risk provisions in the segment swelled to EUR 52 million (H1 2022: EUR 14 million), largely the result of the current situation in the real estate market and of adequately addressing potential risks. This figure was boosted by recoveries on written down receivables vis-á-vis HETA Resolution AG.
Operating earnings were stable at BayernInvest, at Real I.S. they fell slightly due to market factors. BayernLabo increased its earnings, in particular owing to the current developments on the interest rate market.
The Corporates & Markets segment doubled its profit before taxes to EUR 161 million (H1 2022: EUR 80 million). The segment's operating earnings potential grew significantly, which was predominantly due to the ongoing strict implementation of the streamlining strategy. The increase in net interest and net commission income to a total of EUR 221 million (H1 2022: EUR 179 million) reflects the very good performance in new business. In addition, the gains or losses on fair value measurement item improved to EUR 35 million (H1 2022: EUR 4 million). The figure benefited in particular from good customer business, especially in FX and CO2 trading. Risk provisions also boosted earnings with a gain of EUR 32 million (H1 2022: EUR 22 million).
Profit before taxes in the DKB segment rose exceptionally sharply in the first half of the year to EUR 601 million (H1 2022: EUR 119 million), driven by higher interest rates. The segment’s net interest income almost doubled to EUR 1,041 million (H1 2022: EUR 523 million). As the interest rate on overnight money for retail customers is being raised as of 1 August, the higher interest rates will not continue to impact net interest income to this extent going forward. Net interest income also benefited from growth in credit volume, especially with corporate customers, and from additional gains on hedge accounting. Net commission income came in higher, partly due to the good performance in the card business and payment services, rising to EUR 71 million (H1 2022: EUR 43 million). Administrative expenses rose to EUR 391 million (H1 2022: EUR 370 million) due to the growth and digitalisation strategy. DKB expanded its retail customer base to around 5.4 million clients (H1 2022: approximately 5.2 million), thereby further consolidating its position as Germany’s second-largest online bank and one of the country’s market leaders in digital banking.
BayernLB has raised its earnings forecast for the full year and now expects a profit before taxes of EUR 1.1 billion to EUR 1.3 billion. This forecast is still fraught with significant uncertainty due to the ongoing war between Russia and Ukraine, high geopolitical risks and the inflation and interest rate situation.
Additional details on the BayernLB Group's financials in the first half of 2023 can be found in the supplementary IR presentation and in the Group Financial Report as at 30 June 2023. Both documents can be downloaded at www.bayernlb.com.