Positive development in the core business area as earnings driver
New business volume rises by 28.5 %
Further strengthening of precautionary reserves
Deutsche Hypothekenbank achieved a result from normal operations of € 33.7 million in the first half of 2016 (previous year: € 31.3 million). The nearly 8 % increase in earnings is attributable to lower administrative expenses, among other things, and the continued relaxed risk situation in the core business area of commercial real estate finance.
“Deutsche Hypo got off to a good start in 2016. We were able to further increase our earnings and also improve the quality of our real estate finance portfolio”, reported Andreas Pohl, Chairman of the Board of Managing Directors of Deutsche Hypo, at the presentation of the half-year figures in Frankfurt. “Even though the competition has become even more intense, especially domestically, we have been able to increase the volume of our new business without compromising our conservative risk policy”.
Domestic and foreign growth of new business
At € 1,802.4 million (previous year: € 1,402.9 million), the new business volume at Deutsche Hypo increased by 28.5 %. Commitments increased both on the domestic (€ 1,092.6 to € 939.4 million) and foreign markets (€ 709.7 to € 463.5 million). About half of the volume of new business (€ 927.4 million) accounted to the financing of office properties.
The Bank’s good market position in commercial real estate financing contributes to its comfortable and competitive funding situation. In the first half of 2016, it issued its own securities of more than € 2,681.0 million (previous year: € 1,518.0 million). The volume is divided between mortgage Pfandbriefe with a share of 46.6 %, and unsecured bonds with a share of 53.4 %. The issue of two benchmark mortgage Pfandbriefe with volumes of € 500.0 and € 750.0 million generated a great deal of attention in the market.
Relaxed risk situation
The net interest and net commission income in the first half of 2016 amounted to €103.6 million (previous year: € 124.2 million). The exceptionally high 2015 figure was characterized by one-off effects, in particular a high rate of early loan repayments.
Due to sustained positive development in its target markets, Deutsche Hypo’s risk situation remains normal. The core business area of commercial real estate in the first half of 2016 even recorded a positive risk result. That the Bank’s entire risk result of € -25.5 million (previous year: € -24.6 million) nevertheless remained relatively constant, is due to the repurchase of its own securities for market servicing efforts, as well as a significant allocation to the precautionary reserves, pursuant to §340 HGB.
Further decline in administrative expenses
Thanks to disciplined cost management, Deutsche Hypo succeeded in keeping its administrative expenses low, at € 42.6 million (previous year: € 45.9 million). This means that for the whole of 2016, the amount of the bank levy is already fully covered. The ongoing efficiency improvement programme thus continued to achieve visible success. The operating income compared to the previous year was a catalyst for the increased cost-income ratio to 41.9 % (previous year: 37.6 %). While the other operating income was, at € -1.7 million, largely stable (previous year: € -2.1 million), the income from securities and participatory interest income improved to € 0.0 million (previous year: € -20.3 million), since – unlike in the previous year, when charges were incurred because of the Heta involvement – no write-downs on securities had to be made.
The bottom line is that Deutsche Hypo’s result from normal operations in the first half of 2016 was € 33.7 million (previous year: € 31.3 million), an increase of 7.7 %. The return-on-equity, at 6.4 %, maintained its previous-year level (€ 6.4 million).
“We are heading in the right direction in 2016”
“Our outlook for the full year 2016 is positive”, said Pohl. “As long as no new external shocks hit, the positive development in our target markets will continue, coupled with continued good opportunities for new business for Deutsche Hypo. Our focus remains exclusively on high-quality real estate. We are headed in the right direction in 2016, and are confident of meeting our targets for new business and earnings. All in all, we therefore expect for the whole of 2016 a result from normal operations that is at the high level of the previous year.