Aareal increases lending and profit forecasts

Germany’s Aareal Bank has revised upward its real estate loan origination forecast for 2016 as well as its profit expectations following a strong third quarter.

The Wiesbaden-based bank’s Q3 2016 results showed that €1.6 billion of new business was written by its structured property financing segment during the period, of which €600 million reflected newly-originated loans. In line with its drive into the American market, 68 percent of new loans were written in the US.

Although the Q3 total was down from €2.7 billion in the same period in 2015, Aareal said that the figure for the first nine months of 2016 was €6 billion, almost in line with €6.3 billion last year despite lower global transaction volumes and a higher level of early renewals.

As a result, Aareal raised the full-year target range for new business to between €8 billion and €9 billion, from an original forecast of €7 billion to €8 billion.

The bank also raised its expectations for operating profit. Third quarter consolidated operating profit was €74 million, leading it to raise its full-year forecast from between €300-330 million to within €360-380 million.

The Q3 figure was down on the €82 million done in Q3 2015, reflecting an expected decline in net interest income, which Aareal said was due to “the reduction of portfolios no longer in line with the bank’s strategy”. Nine-month consolidated operating profit stood at €281 million, up 23 percent year-on-year.

Operating profit in the structured property financing segment stood at €85 million in Q3, compared to €89 million in the same period last year. Net interest income for Q3 was €179 million, down year-on-year from €214 million.

“The decline in net interest income, compared to the same quarter of the previous year, was largely due to the reduction of non-strategic portfolios and lower effects from early loan repayments,” the bank said. It noted that net interest income was only slightly below the previous quarter’s €181 million, with stable margins.

“Aareal Bank expects global economic growth to remain subdued for the remainder of the 2016 financial year, with the bank’s business activities likely to be subject to numerous economic, political and regulatory risks and uncertainty factors,” it added. “Adhering to its conservative policy on the granting of loans, Aareal Bank remains generally optimistic.”