Aareal Bank has increased its annual global real estate lending forecast for the year to up to €8bn, after closing €4.4bn in the first six months, including €3.3bn in Europe, driven by an expectation of increases transaction environment as liquidity continues to improve in mature markets.
In its interim results published this morning, Aareal reported a second-quarter new real estate lending of €2.4bn – comprised of €1.3bn in new business and €1.1bn in renewals – and noted both the increase in competition in core markets, as well as an increased liquidity which has led to new guidance of between €7bn and €8bn for the full year.
Aareal’s net global real estate loan book, after repayments and maturities, rose modestly just to €200m to €23.5bn, while its forecast for the end of 2013 is for – again net of maturities and repayments – at around €25bn.
The Structured Property Financing (SPF) business division contributed €50m in operating profit in the second quarter, and €101m over the first six months, which reduced to a six-month group operating profit of €92m.
Aareal reaffirmed that full year consolidated operating profits could match 2012’s €176m – and could even reach 2011’s €186m.
Pre-tax return on equity at group level was 7.3% in the first six-months of the year, consistent with the 2013 forecast of above 7%, although this remains someway short of its 2015 to 2016 target of a pre-tax RoE of 12% – above the bank’s net cost of equity, current forecast for 2013 at 10% to 11%.
Loan provisions were €28m over the second quarter, taking the first half of the year’s total to €45m, and guidance for the full year to between €110m and €150m, reflecting higher full year provisions than last year’s €106m as the loan book grows and Southern European property markets’ continue to diverge from the rest of Europe and the US, in particular.
Dr Wolf Schumacher, chairman of Aareal Bank’s Management Board, said: “At the mid-year point, we see no relief to the challenging environment for the banking sector, given the prevailing economic weakness in numerous markets, and increasingly demanding regulation.
“Aareal Bank has successfully mastered the challenges of the past years. And even though the macro-economic environment remains tense, thanks to our viable business model, our forward-looking business policy and outstanding market position, we are in an excellent position to succeed even in the ‘new normal’ for banks.”
Net interest income benefited from good margins on new business underwritten during previous periods, which offset the impact of the persistent low interest rate levels on the deposit-taking business and on investing cash and cash equivalents.
At € 126 million, net interest income exceeded both the net figures for the first quarter, at €121m, and the same quarter of the previous year €122m, although the composition of this income is changing.
Aareal said higher commercial real estate margins overcompensate for multiple negative influences for this financial metric: that spreads between deposit rate and EURIBOR and the ECB rate have turned negative; deposit margins are at new low; lower returns on investments of residual non-interest bearing liabilities.