pbb's stable operating profit in the first half of 2020 supports higher risk provisioning

  • Net interest and commission income rises slightly in Q2 to €118 million - half-year figure of €231 million on previous year’s level
  • Risk provisioning for the first half of 2020 raised to a total of €70 million, following weaker macroeconomic forecasts
  • Six-month new business at a good level of €2.8 billion – gross margin in Real Estate Finance rises to over 175 bp
  • CEO Andreas Arndt: Solid operating results expected for the full year 2020, materially dependent upon required risk provisioning
  • pbb adheres to the ECB’s renewed, sector-wide recommendation to suspend dividend payments until January 2021

Munich, 12 August 2020 – pbb Deutsche Pfandbriefbank slightly increased in-come from lending business during the second quarter of 2020, demonstrating continued operating stability during the current financial year. Net interest and commission income for the second quarter rose slightly to €118 million; the six-month figure of €231 million reached the previous year’s level (Q2 2019: €115 million; H1 2019: €232 million). pbb used large portions of results to shield against risks, recognising an additional €59 million in model-based general loan loss provisions (stage 1 and stage 2 impairments under IFRS 9) for the first half of the year. An additional €12 million in impairments was recognised for potential defaults of individual exposures (stage 3 impairments). Model-based provisions resulted from a significant further weakening of assessments regarding the mac-roeconomic – and in some cases, the sector-specific – environment during the course of the second quarter. Net income from fair value measurement normal-ised in the second quarter; at €-16 million, the figure for the first half of the year declined year-on-year (H1 2019: €-7 million). At €48 million (Q1) and €49 million (Q2), respectively, general and administrative expenses were in line with the previous year’s periods (Q1 2019: €46 million; Q2 2019: €47 million). Pre-tax profit for the first half of the year totalled €31 million (H1 2019: €117 million – consolidated figures in accordance with IFRS, reviewed by external auditors); excluding the items of net income from risk provisioning and net income from fair value measurement, pre-tax profit for the first half of the year would have amounted to €117 million.

pbb withdrew its guidance for the full year 2020 on 4 May 2020 – in particular, because the development of net income from risk provisioning and net income from fair value measurement could not be reliably forecast. In view of the further significant downward revision of the macroeconomic assumptions in the second quarter, the Bank maintains its conservative assessment. However, following this recalibration of macroeconomic forecasts and risk provisions, pbb does not expect any significant further additions to model-based general loan loss provisions for the second half of the year - provided that the economic environment and sector-specific forecasts do not further materially deteriorate. However, pbb remains cautious with regard to possible provisions for defaults on individual loans (level 3) - although no concrete measures are currently in sight. pbb expects net interest income to increase in the second half of 2020, compared to the first six months. A variety of factors are expected to have a positive impact: a slight increase in the real estate financing portfolio - not least based on higher new business volumes in the second half of 2020 - a stabilisation of the trend towards higher new business margins, lower funding expenses as well as additional income generated from the ECB’s TLTRO facility. General and administrative expenses for the full year 2020 are envisaged to be down slightly year-on-year. 

Whilst in the first quarter of 2020, the COVID-19 pandemic had no material im-pact on pbb’s new business volumes, this changed in the second quarter when new business was impacted by the economic effects of the pandemic. Accord-ingly, new commercial real estate finance volume totalled €2.7 billion in the first half of the year (H1 2019: €4.4 billion, in each case including extensions beyond one year). However, pbb was able to achieve higher margins: average gross margins on new business continued to rise in the second quarter, to above 185 basis points (bp). This led to a marked increase for the first half of the year, to above 175 bp (H1 2019: > 140 bp). Moreover, prepayments in the current finan-cial year fell short of the levels seen in the same period of the previous year: hence, the lending portfolio in commercial real estate finance remained largely stable during the second quarter, at €26.7 billion (03/2020: €26.8 billion).

CEO Andreas Arndt commented: “Once again, the first half of 2020 was char-acterised by a healthy performance in our income and expense items. Good operating results have facilitated another increase in the risk shield for our port-folio in the second quarter, responding to the external shock caused by the impact of the COVID-19 pandemic. We anticipate solid results for 2020 as a whole – however, the actual figure will materially depend upon required risk provisioning, especially for potential defaults of individual exposures.”

Dividends and dividend policy

Adhering to the ECB’s renewed recommendation issued on 28 July, the Bank's Management Board and Supervisory Board resolved to suspend dividend distri-butions until January 2021. pbb affirms its dividend policy, as outlined in March 2020. Given the ECB’s indication that it will review its position on dividend pay-ments during the fourth quarter of 2020, pbb will comment on the possible re-sumption of the Bank’s dividend distribution without undue delay – at the latest upon publication of preliminary results for the 2020 financial year, scheduled for March 2021.