Deutsche Hypo warns that CRE represents a “major challenge” to lenders

German mortgage bank Deutsche Hypo increased its volume of new commercial real estate lending by 2.8 percent during 2015, although management board member Andreas Pohl warned that the CRE finance market represents a “major challenge” for all lenders.

Deutsche Hypo’s new CRE lending volume increased to €3.71 billion, although there was an overall decrease in its CRE finance portfolio due to the early repayment of loans. The loan book shrank by 3.7 percent to €11.95 billion, although the bank reported that early repayment compensations more than made up for the resulting lower income.

Net interest income actually increased slightly by 1 percent to €224.5 million, it said.

The increase in new CRE lending during 2015 was spread evenly between Deutsche Hypo’s home market of Germany, which accounted for €2.18 billion, and its foreign core markets. A total of €648.9 million of new business was generated in the UK, up significantly from €204.2 million in 2014. The Benelux was also a strong performer in 2015, with €555.5 million of new business, although that total was actually down from €658.2 million in the previous year.

Overall, Deutsche Hypo reported a 2015 profit from normal operations of €70.3 million, up from €41.4 million in the previous year. A major driver of profit was the improvement in the bank’s overall risk result, to minus €41.3 million from minus €62.2 million.

However, Deutsche Hypo increased its loan loss provisions for its exposure to Heta Asset Resolution, the ‘bad bank’ of Austria’s Hypo Alpe Adria. The bank reported that this had a negative effect both on the risk result and the income from securities and participatory interest, which totalled minus €29.4 million, from minus €42.5 million in 2014.

“In light of the fact that Deutsche Hypo has for the first time reported a profit of over €70 million, we can be very pleased with the financial year 2015,” said Pohl. “However, we are aware that the increase in profit was due in part to special effects. The current market developments in commercial real estate finance represent a major challenge for all financing institutes.”

In terms of funding, Deutsche Hypo issued securities totalling €3.57 billion, including mortgage Pfandbriefe of €1.6 billion and unsecured bonds of €1.97 billion.