A high concentration of business in the competitive German market during Q1 2017 resulted in a drop in average gross margins across pbb Deutsche Pfandbriefbank’s lending, from around 170 basis points to around 160 bps.
In its latest quarterly update, the German bank said that 61 percent of new real estate business was originated in its domestic market, resulting in the decline in margins. The average loan-to-value ratio decreased to 62 percent, compared to 63 percent in the same quarter last year.
US financings, where pbb resumed activities during the second half of 2016, accounted for 8 percent of new business.
Overall, pbb provided €2 billion of new commercial real estate lending during the first quarter of 2017 in what it described as a “solid start” to the year. The bank’s CRE lending contributed to a total €2.4 billion of new business including public investment finance. The overall new business volume, which includes loan extensions of more than one year, was down from €2.9 billion in the same quarter during 2016.
The bank reported that the strategic portfolio grew slightly over the period, from €31.5 billion in December 2016 to €31.8 billion. Meanwhile, the non-strategic ‘value portfolio’ was reduced from €15.8 billion to €15.5 billion over the period.
Pbb recorded a slight increase in pre-tax profit to €47 million, compared to €45 million in the first quarter of 2016. It is aiming for pre-tax profit of between €150 million and €170 million for the full-year 2017 and new business of €10.5-12.5 billion, targets which it said Q1’s results support.
“The key drivers of pbb’s lending business remained consistent,” the bank said in its statement. The aggregate of net interest income and net commission income was stable, at €106 million, compared to €104 million in Q1 2016. Loan loss provisions came in at €2 million.
The bank’s CET1 capital ratio rose to 19.2 percent as at 31 March 2017, up slightly from 19 percent in December 2016. The bank said that it remained above the industry average, providing it with “a comfortable capital buffer for further growth and increasing regulatory requirements”.
“Pbb is holding its course, in an environment that remains very difficult – notably, in terms of interest rates and tough competition,” said CEO Andreas Arndt.
“We have started 2017 with solid results and a good level of new business. We are embarking upon implementation of various initiatives designed to develop pbb further, and to strengthen its market position – as well as pushing innovation: the expansion of our business in the US, broadening our client base in existing markets through the introduction of new products and exploring new client groups, as well as the ongoing development of digital solutions,” Arndt added.