Aareal’s “cautious” Q1 lending drops to €900m

The volume of new lending by Aareal Bank’s structured property finance division during Q1 2016 was just half of the volume originated during the same period last year.

The volume of new lending by Aareal Bank’s structured property finance division during Q1 2016 was just half of the volume originated during the same period last year. However, the unit generated increased profits on the back of a push into the high-margin US market.

Aareal HQThe German bank’s real estate lending unit wrote €900 million of new business during the first quarter of this year, compared to €1.8 billion during Q1 2015.

The bank said that the lower volume reflected a “deliberately cautious and selective” new business policy, which focussed on growing business in the US market. The strategy enabled the bank to largely neutralise persistent margin pressures in the real estate finance business segment, it said.

Newly originated loans accounted for around 66 percent of the total. In line with the growth strategy for business in North America, around 55 percent of new business was transacted in the US market.

The bank added that it maintains its new business target of between €7 billion and €8 billion for the 2016 financial year.

In its structured property financing segment, Aareal generated operating profit of €96 million, up markedly from €74 million in Q1 2015.

Overall, Aareal Bank Group reported consolidated operating profit of €87 million for the quarter, up almost 30 percent on the €67 million in Q1 2015. Affirming its full-year outlook, the bank said that it anticipates consolidated operating profit of between €300 million and €330 million.

On its outlook for 2016, the bank said that competitive pressure in the commercial property markets will increase further in the prevailing low interest rate environment. New business of between €7 billion and €8 billion is targeted for the structured property financing segment during 2016. The bank lent €9.6 billion during 2015.

“Aareal Bank Group has enjoyed a positive start into the current financial year”, said Hermann J Merkens, chairman of the management board.

“The marked increase in results for the first quarter shows that our two business segments are performing very well, even in a challenging competitive environment. We are thus in the best position to successfully implement our ‘Aareal 2020’ programme, through which we want to explore new, attractive growth opportunities – even beyond the interest-bearing business,” Merkens added.

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