Further improvement in both net interest income and the cost-income-ratio
Significant increase in new business volume (+36%)
Loan loss provisions for the Heta exposure reduced the result
In the 2014 financial year, Deutsche Hypo generated a result from normal operations of € 41.4 million. This was thus significantly below the previous year’s result of € 64.3 million. While the exceptional effects in the capital market business had a negative impact on the result, this was offset by the extremely positive development in the commercial real estate financing business.
“We can be very satisfied with business development, particularly, in our core business area of commercial real estate financing. We were able to generate significant increases in both our new business volume as well as our income. Moreover, our risk result in this area was far below the level of the previous year”, explained Andreas Pohl, Speaker of Deutsche Hypo’s Board of Managing Directors. Without the exceptional charge in the capital market business we would have exceeded the record result reported in 2013 appreciably.“
Foreign new business opportunities are growing
Deutsche Hypo recorded a big leap forward regarding new business volume in commercial real estate financing. In 2014, the volume of loans – excluding prolongations – was around € 3,610.3 million compared with € 2,662.1 million in the previous year, which is an increase of 35.6%. The strong growth resulted, in particular, from a higher commitment volume outside of Germany in the amount of € 1,492.8 million (previous year: 563.1), which was due to enhanced new business opportunities in the target markets of the UK, France, Benelux and Poland. Nevertheless, in the German core market, the level of new business remained at a high level at € 2,117.5 million (previous year: 2,099.0). The positive development in new business resulted in the expansion of the real estate finance portfolio to € 12,409.8 million (prior year: 11,931.7).
In the 2014 financial year, Deutsche Hypo was also able to increase its income. The decline in net commission income to € 4.5 million (prior year: 6.6) was offset by significant growth in net interest income to 222.3 million (prior year: 209.8).
Quality of the real estate finance portfolio has improved
Deutsche Hypo’s overall risk result improved to € -62.2 million (previous year: -83.2). In the real estate finance business, as in the previous years, there was a continuation in the trend toward a decline in net expenses from the lending business. This development is a reflection of the gradual improvement in the quality of the Bank’s commercial real estate finance portfolio.
The other operating result of € -10.5 million (prior year: -6.5) was impacted primarily by the contribution that had to be made to the restructuring funds as well as the required discounting of provisions. The loan loss provision that had to be made for receivables from the Heta Asset Resolution AG (Heta) meant that the income from securities and participatory interest was clearly negative at € -42.5 milion (prior year: 6.5). The risk provisioning was the Bank’s reaction to the payment moratorium, until 31 May 2016, on Heta’s liabilities that was imposed by the Austrian Financial Market Supervisory Authority (FMA) at the beginning of March. The Bank’s claims against Heta amount to € 245 million. Against the background of the existing default guarantee of the state of Carinthia, Deutsche Hypo will make use of all possible legal means to enforce its claims.
Cost optimisation programme continues to develop positively
In the 2014 financial year, the Bank was largely able to maintain the level of its administrative expenses – despite the higher costs connected with the increase in regulatory requirements and the relocation to its new headquarters – at € 70.2 million (prior year: 69.0). This was due to the successful implementation of the efficiency improvement programme, which was launched in 2012. Against the backdrop of higher income and almost steady administrative expenses, Deutsche Hypo’s cost-income-ratio improved slightly to 32.5% (prior year: 32.8%). All in all, the result from normal operations amounted to € 41.4 million (prior year: 64.3).
Deutsche Hypo’s funding activity in the previous financial year proceeded according to plan. In 2014, the Bank issued securities in an overall amount of € 2,852.2 million (prior year: 3,265.7), thereof mortgage Pfandbriefe in the amount of € 1,613.7 million (prior year: 2,725.0) and unsecured bonds in the amount of € 1,238.5 million (prior year: 540.7). As in previous years, the focus of the issuance was on private placements, which accounted for 73.7%. A five-year benchmark issue with a volume of € 500 million and a € 250 million tap of an existing benchmark were met with solid demand, as expected.
Optimistic outlook for the 2015 financial year
“The low interest rate environment is keeping investor demand for commercial real estate at high levels and the situation in the most important real estate markets, above all in our core German market, remains good to very good. Even though the competition has become tougher, we still have good opportunities for generating new business in our target markets“, highlighted Andreas Pohl. “Therefore, for 2015, we expect both income and administrative expenses to remain stable and the negative impact on results from capital market effects to be smaller. Thus, on balance, we expect an improvement in results.”
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