- Consolidated operating profit of €62 million (Q1 2022: €30 million), despite previously announced additional expenses of €34 million at Aareon
- Strong income growth: net interest income up 40 per cent; net commission income up 13 per cent
- Loss allowance at a moderate level, including additional management overlay for the US office property finance portfolio; further slight decline in the NPL inventory
- CET1 ratio at 19.4 per cent
- CEO Jochen Klösges: “We have further increased our operating profitability and remain on course. We are taking a forward-looking, vigilant stance in the current challenging environment.”
Wiesbaden, 11 May 2023 – Aareal Bank Group doubled its consolidated operating profit in the first quarter, to €62 million (Q1 2022: €30 million). This strong result also includes €34 million of investments and expenses to enhance Aareon’s efficiency, as announced at the annual press conference. Net interest income and net commission income both soared, whilst loss allowance remained moderate. Even though a €21 million management overlay was recognised, loss allowance totalled €32 million. In view of current volatility, Aareal Bank has selectively originated new commercial property finance business in the first quarter. At the same time, Aareon’s sales revenues continued to develop very favourably, whilst the strong deposit base remained above the full-year target.
Chief Executive Officer Jochen Klösges said: “We have further increased our operating profitability and remain on course. We are taking a forward-looking, vigilant stance in the current challenging environment. With our robust business model, broadly diversified property financing portfolio, and strong capital and liquidity position, we are well positioned even for a difficult market environment.”
Net interest income rose by 40 per cent, to €222 million (Q1 2022: €159 million). The marked increase was driven on the one hand by solid margins and higher portfolio volume compared to the same quarter of the previous year. On the other hand, the deposit-taking business continued to benefit from rising interest rates.
Net commission income also continued to increase, rising 13 per cent compared to the same quarter of the previous year, to reach €72 million (Q1 2022: €64 million). Software subsidiary Aareon’s growth was a major contributor to this.
Loss allowance in the first quarter amounted to €32 million (Q1 2022: €49 million), this includes a management overlay in the amount of €21 million for US office property financings, to cover potential impairments. Around €60 million was budgeted for the targeted swift NPL reduction, as communicated for the financial year and included in loss allowance for the full year. Whilst the budgeted figure was not yet drawn upon in the first quarter, preparatory measures have already commenced. At €1.055 billion, the volume of non-performing loans (NPLs) declined slightly; the NPL ratio amounts to 3.4 per cent.
Consolidated administrative expenses rose to €199 million (Q1 2022: €153 million) – reflecting, as expected, strong growth and the announced additional expenses for efficiency-enhancement measures at Aareon, which accounted for €34 million. Administrative expenses also include charges for the bank levy and the deposit guarantee scheme in the amount of €25 million, which are generally posted during the first quarter of the year. Costs in the banking business remained stable: the cost/income ratio of 35 per cent was at a very good level during the quarter under review, even in an international comparison. This metric does not include the bank levy and the deposit guarantee scheme, as is customary in the banking sector.
Considering tax deductions of €20 million, consolidated net income was €42 million (Q1 2022: €19 million). Earnings per share came to €0.78 (Q1 2022: €0.25)
Aareal Bank continues to enjoy a very solid capital base. As at 31 March 2023, the Bank’s Common Equity Tier 1 (CET1) ratio (Basel IV phase-in ratio) was 19.4 per cent, which is very comfortable even on an international level. The total capital ratio stood at 23.8 per cent.
Aareal Bank’s funding activities also proved successful: the Bank placed two benchmark Pfandbrief issues with an aggregate volume of €1.5 billion already at the beginning of the year. The volume of fixed-interest retail deposits sourced through platforms rose from €0.6 billion at year-end to more than €1.4 billion in the first quarter.
Chief Financial Officer Marc Hess said: “We were very successful in diversifying our funding sources already last year, which has clearly made us less dependent on funding via the capital markets and has proven especially helpful in volatile markets, as we have recently seen.”
Development by business segments
In its Structured Property Financing segment, Aareal Bank adopted a selective approach towards newly acquired business, taking the low level of transaction volumes into consideration, achieving excellent average gross margins of approximately 300 basis points (Q1 2022: approximately 220 basis points) and very conservative loan-to-value ratios averaging 53 per cent (Q1 2022: 57 per cent). New business volume – which includes both renewals and newly acquired business – amounted to €1.1 billion as at the end of March (Q1 2022: €3.3 billion).
Portfolio volume reached €30.7 billion as at the end of the first quarter, thereby remaining largely stable, despite being burdened by exchange rate fluctuations (31 Dec 2022: €30.9 billion). Average loan-to-value ratios in the existing portfolio of only 55 per cent reflect the high quality of Aareal Bank’s credit portfolio.
Turning to the Banking & Digital Solutions segment, at €13.7 billion the average volume of customer deposits from the housing industry remained above the targeted level of around €13 billion and above the previous year’s average of €13.4 billion in the first quarter. Aareal Bank is a leading payment services provider on the German housing market, serving more than 3,700 clients from the housing industry with around 8 million managed residential units. In 2022, Aareal Bank handled the majority of payment transactions for these clients.
Net interest income in the segment soared by 333 per cent to €52 million (Q1 2022: €12 million), driven by increased interest rate levels. The segment’s net commission income increased to €8 million (Q1 2022: €7 million).
Software subsidiary Aareon increased its sales revenues by 15 per cent to €83 million, up from €72 million in the first quarter of 2022, marking progress in the transition from a licence-based approach to a Software-as-a-Service (SaaS) model. As such, the share of recurring revenue increased to 75 per cent. Adjusted EBITDA increased to €18 million (Q1 2022: €16 million). Aareon invested in the announced early retirement programme and in product and process efficiency, thus launching its strategic efficiency-enhancement measures in the first quarter. These are set to deliver gradual cost relief effects already in 2023.
Aareon continued its M&A activities as planned, acquiring – amongst others – Embrace, the Dutch market leader for SaaS solutions in the areas of digital workspace and customer engagement during the reporting period, thereby not only improving its positioning in the Dutch market, but also further expanding its product portfolio for European clients. Aareon also launched its new partner programme Aareon Connect in Germany, which will allow clients to integrate third-party software solutions and services with Aareon’s ERP systems quickly and easily. More than ten partners have joined the programme from the start.
Outlook
Aareal Bank continues to expect consolidated operating profit for 2023 of between €240 million and €280 million. As communicated at the annual press conference in March, this figure includes additional expenses for a swift NPL reduction and the implementation of efficiency measures at Aareon. The market environment, however, remains challenging, given the ongoing geopolitical risks.
Contacts for the media:
Margarita Thiel
Phone: +49 611 348 2306
Mobile: +49 171 2069740
margarita.thiel(at)aareal-bank.com
Christian Feldbrügge
Phone: +49 611 348 2280
Mobile: +49 171 8667919
christian.feldbruegge(at)aareal-bank.com
Contact for investors:
Aareal Bank AG – Investor Relations
Phone: +49 611 348 3009
ir(at)aareal-bank.com
