Aareal Bank has raised its European annual property lending forecast for the second time within a year to in excess of €8bn, surpassing its 2011 post-global financial crisis record.
Back in August, the German bank increased its lending target from between €6bn to €7bn to between €7bn and €8bn, increasing Aareal’s annual target by as much as €2bn, or one-third, from most conservative to most bullish.
In this morning’s third quarter results, Aareal Bank is now forecasting a real estate lending tally “in excess of €8bn” which would see the targeted net commercial real estate loan book end the year at circa €25bn.
Over the third quarter, Aareal Bank closed €2.2bn of property loans, taking the tally over the three quarters to €6.7bn.
Aareal explained that higher repayments over the quarter were driven by greater liquidity in the markets, which has been compensated by higher demand for new financings albeit at tightening margins in prime markets.
Operating profit for the third quarter at group level was €42m, taking the nine-month tally to €135m and prompting an increased full year forecast to comparable with 2011’s €185m.
Dr Wolf Schumacher, chairman of Aareal Bank’s Management Board, said: “The fact that we have raised our profit forecast shows that we are well positioned to master the current and future challenges confronting us. We have aligned our business to the ‘new normal’ for banks, adjusting our short- to medium-term planning accordingly.”
Specifically within Aareal’s Structured Property Financing business division, Aareal’s third quarter operating profit was €52m.
The turnaround in optimism by the bank is considerable over the last 18 months, when, in February 2012, Aareal scaled back its lending ambitions to less than €5.5bn citing “continued volatile and uncertain environment”.
As the end of 2013 approaches, the worst case fears rolled out by property lending banks have been replaced by references to excessive new competition depressing margins, particularly for prime stock.
Indeed, Aareal referred to a “competitive environment that remained challenging”.
Schumacher said: “Even though as expected, competition grew even more intense in those markets that are particularly attractive, we further strengthened our position as one of the leading providers of commercial property finance during the third quarter, posting strong results.
“In our view, this once again confirms the strength and robustness of our business model, which will continue to provide the basis of our success in the future.”
Furthermore, Aareal stated: “Whilst Aareal Bank benefited from good lending margins and low funding costs, net interest income was burdened by a lack of attractive investment opportunities for the bank’s liquidity reserves, on account of the prevailing low interest rate levels.
“There still is significant uncertainty – for instance in view of the European sovereign debt crisis, for which a sustainable solution still has to be found.
“Aareal Bank expects competition in the commercial real estate financing business to intensify further, particularly in regard to first-class properties with low loan-to-value ratios in numerous markets in Western and Northern Europe, but also in the US, and in key Asian markets.”