European specialist bank for commercial real estate finance Deutsche Pfandbriefbank AG (pbb), closed 2024 with a significantly improved result, as announced. With a pre-tax profit of €104 million (IFRS, Group, audited, approval by the Supervisory Board pending), the Bank exceeded the previous year’s result (€90 million) by more than 15 percent. Risk costs declined significantly. Risk provisions fell by around 20% from €-212 million (2023) to €-170 million in a persistently difficult market environment.
“Significantly higher profit, significantly lower risk provisions, costs below the previous year’s level despite high investments in our future: despite the challenging market environment in 2024, pbb delivered what it announced. In 2025, the focus will now be on implementing our Strategy 2027: We want to become more profitable, more diversified and more cost-efficient,” said Kay Wolf, CEO at pbb.
The strategic focus on the balance sheet and capital management had a temporary negative impact on operating income in 2024. The focus on profitability and reducing the capital tied up in the portfolio initially led to a reduction in interest income from €482 million to €465 million. As expected, operating income fell from €603 million (2023) to €544 million, as 2023 benefited from non-recurring special effects such as the reversal of provisions to the amount of around € 55 million. Operating income was, therefore, at the upper end of the guidance of €525-550 million.
Due to pbb focusing strictly on an attractive risk/return profile and thus on profitability, at € 5.1 billion, new business was selective (2023: €7.2 billion; including prolongations of more than one year in each case) and, as a result, remained below expectations for the year. The Bank was able to realise a strong fourth quarter with a volume of €2.6 billion and a stable high margin. Meanwhile, the new business margin rose significantly from ~ 205 basis points (bp) (2023) to ~ 240 bp. The portfolio decreased by €2.1 billion (2023: €31.1 billion) and thus reached the strategic target value of €29 billion.
In 2024, the bank made important investments in the digital future and the diversification of its business model. Despite these investments, administrative expenses fell to €245 million from €249 million in the previous year. As expected, the cost- income ratio (CIR) rose moderately to 49 percent (2023: 46 percent) and was therefore slightly below the guidance of around 50 percent.
Risk provisioning was reduced considerably in 2024, even though the requirements were further increased, as expected, to €-170 million for the year (2023: €-212 million). There was a net reversal of €14 million (2023: net addition of € 2 million) for risk provisioning in stages 1 and 2, whereby the management overlay of €31 million build-up for US risks was reversed in full over the year. Net additions to level 3 risk provisions totalled €-184 million (2023: €-211 million), of which € -108 million was attributable to financing in the USA and €-56 million to developments in Germany.
An important milestone was the successful transition to the Foundation Internal Ratings Based Approach (F-IRBA) by Basel IV as the model and risk standard applicable to the majority of the property portfolio from 1 January 2025. The pro forma CET1 ratio following F-IRBA Basel IV was 16.8 percent as of 31 December 2024. Under the Basel regime still in force at the end of the year and with the use of standard risk parameters, the CET1 ratio was 14.4 percent. These strong capital ratios were well above the regulatory requirements. This also applied to an unchanged comfortable liquidity position, which is underpinned by a liquidity coverage ratio (LCR) of 200 percent.
In 2024, pbb’s newly placed long-term funding volume totalled €2.5 billion (2023:
€3.3 billion). The decline is in line with the previous year’s successful pre-funding activities and the falling needs in 2024. Pfandbriefe accounted for the lion’s share of the volume at €2.0 billion (2023: €2.7 billion). Unsecured financing is well balanced between retail deposits (€7.6 billion compared to €6.6 billion in the previous year) and capital market financing at around 50 percent each. In the capital market, pbb issued a senior preferred bond with a volume of €500 million in Q4 2024. At the same time, the non-core portfolio was further reduced by €2.7 billion to €9.7 billion through proactive balance sheet management. This was achieved through asset sales with a volume of €1.9 billion and natural maturities totalling €0.8 billion.
2025: CRE markets stabilise after bottoming out
“The global situation continues to be characterised by great uncertainty. There is still a war in Europe. Inflation persists in some areas, and interest rates are falling more slowly than initially expected. As a result, the recovery on the property markets is only making slow progress,” Wolf continues. “The commercial real estate markets have recently been more stable, albeit still at a low level. We do not anticipate any major increases in transaction volumes in 2025 but expect risk costs to continue to fall. We want to continue to invest in the implementation of our Strategy 2027 to increase commission income. We have sufficient capital and liquidity to set an important course here.”
In terms of new business, pbb anticipates a volume of between €6.5 billion and €7.5 billion for 2025 and a portfolio volume of around €29 billion. The CIR is expected to remain stable, as additional cost reductions in the core business will be reinvested in new business activities in the Real Estate Investment Solutions segment. Risk costs are to be consistently reduced further. The CET1 ratio is expected to exceed 15.5 percent. pbb is also aiming for a significant increase in profit before taxes in 2025. The return on tangible equity (RoTE) is expected to be increased to a level between 3.5 to 4.5 percent RoTE. For 2024, pbb will propose the payment of a cash dividend of 15 cents per share at the Annual General Meeting. In addition, for the first time and as part of a share buy-back programme, the Bank also intends to buy back shares worth €15 million, subject to approval by the ECB. This would put the payout ratio above 50 percent.
