German banks hit lending targets despite market pressures

Several of Germany’s largest specialist real estate banks either met lending targets during 2016 or surpassed the previous year’s origination totals.

However, in their results announcements, senior figures at the banks warned that the German real estate financing sector will face considerable pressures this year, including continued intense market competition and the impact of a full year of negative interest rates.

Munich-based pbb Deutsche Pfandbriefbank reported lending volumes of €10.5 billion, which although down on 2015’s total of €12 billion represented the second-highest annual volume since lending was resumed in 2009.

Aareal Bank’s structured property financing segment provided €9.2 billion last year, down slightly from 2015’s €9.6 billion, but surpassing the year’s target of between €7 billion and €8 billion. Helaba increased its new medium and long-term lending business by 4 percent, to €10.4 billion.

Deutsche Hypo and Berlin Hyp posted smaller volumes, although both increased their origination during the year. Deutsche Hypo’s new lending was up 11.4 percent to €4.5 billion, while Berlin Hyp’s was up 10 percent to €6 billion.

“Despite the prolonged period of low interest rates, fierce competition and the related pressure on margins, we have exceeded our target for new business without sacrificing our conservative risk policy,” said Gero Bergmann, Berlin Hyp’s management board member in charge of markets.

Some German bankers argue that pricing in their domestic market, which has been reported at 80 basis points and even lower, has now reached a floor.

In its results, Aareal said that it has maintained stable margins, as a result of a flexible allocation of new business to “attractive markets”. Pbb, meanwhile, said that it has managed to increase its average gross margins on new lending, while applying the same risk standards.

“The current financial year will not be any less challenging – taking into consideration impending regulatory changes, as well as the competitive situation,” commented pbb’s CEO and CFO, Andreas Arndt.

Helaba chairman Herbert Hans Grüntker warned that 2017 will be the first year in which the consequences of the ECB’s negative interest rate – which was reduced to minus 0.4 percent last March – and its asset purchase programme will be fully felt.

“Institutional investors, such as insurance companies or pension funds, are advancing ever further into banks’ traditional markets as a result of the pressure to invest,” Grüntker said.

Despite the outlook, German banks are facing continued pressure to maintain volumes. Aareal is targeting €7 billion-€8 billion again, while pbb is aiming to lend €10.5 billion-€12.5 billion, which it said it expects to be achieved partially through new business generated in the US, as well as from public investment finance and stabilised pre-payments.