Deutsche Pfandbriefbank AG (pbb) posted a stable result in the second quarter of the current financial year 2022. At €65 million, the pre-tax result slightly exceeded the same quarter of the previous year (Q2 2021: €62 million; consolidated figures in accordance with IFRS). In the first six months of 2022, the pre-tax result amounted to €107 million, after €114 million in the first half of 2021 when early termination fees were still significantly higher.
pbb’s CEO Andreas Arndt commented: “The result and our risk-conservative business model have once again proven very robust. We are prepared for an increasingly difficult market environment and can rely on our high lending standards, our high provisioning levels with an additional management overlay, and our stable capitalisation which we have already calibrated to meet future Basel IV requirements. We, therefore, reiterate our guidance. Realistically speaking, given declining market dynamics, we anticipate new business to be at the lower end of the forecast range communicated at the beginning of the year. Should the current crisis worsen significantly, we will reassess the situation.”
The aggregate of net interest income and net fee and commission income totalled €121 million in the second quarter and €245 million for the first six months of 2022 and was in line with the respective prior-year periods (Q2 2021: €126 million; H1 2021: €251 million). The average portfolio of disbursed (and hence interest-bearing) REF financings increased to €28.0 billion in the first half of 2022 (average volume in H1 2021: €27.1 billion). Furthermore, pbb benefited from a higher volume of liabilities under the TLTRO III programme compared to the first half of 2021 (+€0.9 billion on average). These positive effects were offset, in particular, by lower earnings from floors agreed upon with clients, which contributed less than before due to the increase in interest rates.
Net income from realisations – once again, mainly driven by early termination fees – also felt the effects of higher interest rate levels. In the context of high macroeconomic uncertainty and markedly higher funding costs, real estate investors were more hesitant with regard to the early repayment of loans. After extraordinarily high non-recurring income in the first half of 2021, net income from realisations was significantly lower in the first half of 2022 than in the previous year, finishing the period at €10 million (H1 2021: €38 million).
Net income from fair value measurement in the second quarter of 2022 was overall positive (+€5 million) and climbed to €14 million for the first six months of the year (Q2 2021: €0 million, H1 2021: €2 million). Fluctuations were mainly due to technical valuation effects, which have an effect on net income from fair value measurement even if an overall neutral position is taken.
Despite the deteriorating economic situation and volatile forecasts, pbb’s net income from risk provisioning amounted to a decidedly moderate minus €1 million in the second quarter of 2022, driven by stage 1 and 2 loss allowance (releases of €15 million through profit or loss) as well as stage 3 impairments (€16 million recognised). Net income from stage 1 and 2 expected credit losses was overall positive for the second quarter of 2022, given that the risk parameters such as real estate prices and unemployment rates showed a more favourable development than anticipated, plus a technical effect. The management overlay remained largely stable, at €42 million (Q1 2022: €44 million). Stage 3 impairments are mostly related to increases in existing loss allowance for shopping centres in the UK.
All in all, net income from risk provisioning stood at minus €19 million in the first half of 2022, which compares to minus €33 million in the same period of the previous year. At the end of the first half of 2022, total loss allowance and provisions in the lending business amounted to €380 million (compared to €376 million at the end of the first quarter of 2022 and €358 million at the end of 2021), with stage 1 and 2 impairments still accounting for about half of the Bank’s loss allowance.
Loss allowance has already been calibrated to match future challenges, with a 40 percent weight assigned to a recession scenario, a management overlay equivalent to 20 percent of stage 1 and 2 loss allowance, and a provisioning ratio in excess of 125 bp, based on the core REF portfolio.
Thanks to pbb’s strict cost management, general and administrative expenses remained largely constant during the second quarter and first half of 2022, at €53 million and €106 million respectively (Q2 2021: €51 million, H1 2021: €102 million).