- Core business REF portfolio up by €1.9 billion to €29.5 billion at the end of the quarter – focus remains on risk-conservative business
- Nine-month net interest income and net fee and commission income of €362 million, slightly down year-on-year (primarily due to the end of TLTRO).
- Net income from realisations remains on half-year level of €10 million due to the lack of early repayments and is thus clearly below the previous year’s level
- Net income from risk provisioning amounted to €-38 million (Q3: €-19 million), driven by stage 1 and 2 loss allowance; management overlay remained at €41 million
- pbb direkt's deposit-taking business grew by 14% to €3.6 billion and helped to offset increased costs of unsecured funding on the capital markets
- Changes to the TLTRO programme without material impact in the current financial year
Deutsche Pfandbriefbank AG (pbb) posted a solid result in the third quarter of the current financial year 2022 despite the more difficult economic and political conditions. At €52 million, the pre-tax result fell short of the figure achieved in the same quarter of the previous year (Q3 2021: €72 million; unaudited consolidated figures in accordance with IFRS). This was mostly down to the lack of early repayments, with net income from realisations of €0 million (Q3 2021: €17 million). All in all, pre-tax result for the first nine months of 2022 came to €159 million, compared to €186 million in the same period of the previous year.
pbb’s CEO Andreas Arndt commented: “Our expectation of a possible stagflation scenario has been largely confirmed – inflation remains high, interest rates have markedly increased and a recession is expected. We have already anticipated this development in our loss allowance, by performing a conservative calibration of risk parameters and recognising additional loss allowance through a management overlay, which we maintain. Especially during times of crisis, a risk-conservative business model pays off. This is why we remain on track to stay within our guidance for the full year. This also remains the case in the light of the ECB’s most recent decision to change interest rates for the TLTRO programme.”
The aggregate of net interest income and net fee and commission income totalled €117 million in the third quarter and €362 million for the first nine months of 2022, and was therefore slightly below the respective periods of the previous year (Q3 2021: €124 million; 9m2021: €375 million). The increase in the core REF portfolio, the average volume of which amounted to €28.4 billion in the first nine months (9m2021: €27.1 billion) provided positive contributions to net interest income. However, this could not fully compensate for the decline in earnings from floors and the loss from the expiration of the special interest rate period under TLTRO in June 2022.
The costs of unsecured funding on the capital markets increased markedly in the third quarter, whereas the costs for retail deposits decreased significantly compared to the reference interest rate. With pbb direct - its online-based deposit-banking business, pbb has a growing scalable platform – supplemented by collaboration with other organisations. At €3.6 billion at the end of the third quarter, the portfolio of retail deposits continued to rise significantly to €4.1 billion at the end of October – an increase of approximately €1 billion compared to the start of the year. Pfandbriefe, as pbb’s main funding instrument, again proved to be stable, resulting in a moderate increase in funding costs overall.
New business (including extensions beyond one year) of €6.6 billion for the first nine months exceeded the respective figures for the two previous years. Looking at the fourth quarter of 2022, we observe a clearly positive margin development, aside from temporary fluctuations in the structure of new business.
Net income from fair value measurement benefited from higher interest rates and the widening of credit spreads as well as the valuation adjustments (XVA) for derivatives resulting therefrom. It further increased to €7 million in the third quarter and was significantly higher than in the same period of the previous year (Q3 2022: €1 million).
Net income from realisations continued the development already observed during the first half of the year. In light of rising interest rates and declining real estate transactions, early repayments of loans have clearly dropped further. In addition, the market interest rate for loans that were repaid early was usually higher than the interest rate level at the time of closing. As a result, there were essentially no early termination fees in the third quarter and the net income from realisations amounted to €0 million in total (Q2 2021: €5 million; Q3 2021: €17 million). Rising interest rates and high volatility also favoured net income from hedge accounting, which contributed €7 million to the overall result (Q3 2021: €1 million).
Net income from risk provisioning amounted to €-19 million in the third quarter, due to additions to loss allowance (stage 1 and 2) in light of increased interest rates and the further deterioration of the economic outlook. In contrast, stage 3 impairments remained largely stable and, at €-2 million, did not make a significant contribution to net income from risk provisioning. Given the persisting stagflation risks and high uncertainty, pbb maintains the additional management overlay of €41 million (Q2 2022: €42 million). After the first nine months of 2022, total allowance and provisions in the lending business amounted to €398 million (compared to €380 million at the end of the first half of 2022), with stage 1 and 2 impairments now accounting for slightly more than half of the Bank's loss allowance.
Despite the general rise in costs, general and administrative expenses were maintained at a stable level and amounted to €51 million in the third quarter (Q2 2022: €53 million; Q3 2021: €49 million).