- The Bank’s operating profit rose by 19 per cent to €261 million in the first nine months of the year
- Both business segments made a strong contribution: net interest income up 8 per cent to €792 million
- Marked increase in new property finance business in the third quarter
- Total risk provisions down 9 per cent year-on-year but as expected still at an elevated level due to ongoing challenges in the US office market
- NPL volume further reduced by active NPL management
- Solid capital base and successful funding activities, 2024 funding plan already fulfilled
- Confirming operating profit target range for the Bank of €250-300 million, after expected one-off charges for efficiency enhancement measures in the fourth quarter
- Aareon sale completed, consolidated net income 2024 expected at approximately €2.2 billion including gain from sale
Wiesbaden, 7 November 2024 – Aareal Bank maintained its positive business development and achieved a strong increase in results for the first nine months of the current financial year. The Bank’s operating profit rose by 19 per cent year-on-year to €261 million (9m 2023: €220 million). Both business segments Structured Property Financing (SPF) and Banking & Digital Solutions (BDS) contributed almost equally to this good result. SPF contributed €136 million and BDS €125 million. Higher income with stable costs offset risk provisioning that, as expected, was still at an elevated level due to ongoing challenges in the US office market. Net interest income rose significantly to €792 million while total risk provisions of €288 million were down year-on-year. The Bank generated operating profit of €80 million in the third quarter (Q3 2023: €82 million).
CEO Dr Christian Ricken stated: “Aareal Bank has once again demonstrated the strength of its operating business, generating very good results in a challenging environment, with both of our business segments, Structured Property Financing and Banking & Digital Solutions, contributing to this. We are looking to capitalise on our strong earnings power to invest in positioning ourselves even more efficiently and with a sharper focus on the future.”
As in the first half of the year, Aareal Bank Group reports its results for the first nine months separately, software subsidiary Aareon as a “discontinued operation” and the banking businesses as a “continuing operation”. The previous year’s figures have been adjusted accordingly.
The sale of Aareon, announced in June, was closed on 1 October 2024. The net gain on sale amounts to approximately €2 billion. Therefore, as already communicated, the Group anticipates consolidated net income of around €2.2 billion for the 2024 financial year.
Aareal Bank increased net interest income from its banking business by 8 per cent to €792 million (9m 2023: €734 million). The increase was due in particular to good margins on new business, lower funding costs thanks to a more diversified funding mix, and to the payment business of BDS. Net interest income in the third quarter remained strong, at €262 million (Q3 2023: €258 million).
Since the start of the year commission payments have been made to First Financial Software GmbH, the joint venture with Aareon, resulting in net commission income of minus €1 million (9M 2023: €30 million) and €1 million in the third quarter (Q3 2023: €6 million). The joint venture bundles specialist expertise around payments software solutions for the property sector and related industries; it continues to ensure a smooth collaboration between Aareon and Aareal Bank following the Aareon sale.
Risk provisions including valuation adjustments in the net result from financial instruments (fvpl) totalled €288 million for the first nine months of the year which was down 9 per cent compared with the same period of the previous year (9m 2023: €316 million). Provisions were still at an elevated level due to the ongoing challenges in the US office market and included costs for active NPL management. The existing management overlay was also increased in the first nine months from €25 million at the end of the previous year to €60 million. Including valuation adjustments (fvpl), total risk provisions of €112 million were recognised in the third quarter (Q3 2023: €120 million).
The NPL inventory stood at €1.3 billion at the end of September (31 Dec 2023: €1.6 billion) and was largely attributable to financing of US office properties. In contrast, no new non-performing loans have arisen in the European office property segment since 2022. As previously announced NPLs were reduced by around €300 million through active NPL-management. The Bank continues to actively manage its NPL exposures and has identified a further €500 million for resolution, consistent with its target of keeping the Non Performing Exposure ratio below 3 per cent.
Administrative expenses were stable in the nine-month period, amounting to €253 million (9m 2023: €248 million). At 32.1 per cent, the Bank’s cost/income ratio was very healthy even by international standards. Expenses also remained stable on a quarterly basis, with €73 million incurred in the third quarter (Q3 2023: €76 million). Aareal Bank will continue to focus on keeping its costs under control. Starting in the fourth quarter, efficiency-enhancing measures will be implemented in order to digitalise processes and improve collaboration. This will require one-off charges in the fourth quarter.
After factoring in taxes of €76 million, the Bank’s consolidated net income was €185 million in the first nine months of the year (9m 2023: €154 million), up 20 per cent, with €57 million generated in the third quarter (Q3 2023: €64 million).
Aareal Bank continues to enjoy a very solid capital base. The Bank’s Common Equity Tier 1 ratio (Basel IV phase-in ratio; pro-forma ratio for continuing operations in accordance with IFRS 5) stood at 19.3 per cent at the end of the third quarter (31 Dec 2023 reported: 19.4 per cent). The fully-phased Basel IV CET1 ratio increased to 15.2 per cent, up from 13.4 per cent at the end of last year. The increase is mainly resulting from first-time adoption of the Small & Medium-sized Enterprises factor. The Total Capital Ratio was 25.9 per cent (31 Dec 2023 reported: 23.5 per cent).
Aareal Bank’s funding activities proved very successful. The Bank placed bonds totalling €2.3 billion on the capital markets during the first nine months of the year, including its first green senior non-preferred issue and two benchmark Pfandbriefe, as well as a subordinated Tier 2 bond, which attracted great investor interest and was oversubscribed several times. With another Pfandbrief issued in October, Aareal Bank has already fulfilled its 2024 full-year funding plan.
Fixed-interest retail deposits sourced through platforms also performed well. At the end of September, the volume rose to around €3.6 billion (31 Dec 2023: €2.6 billion) and is now slightly above the current target level.
Developments by business segment
In the Structured Property Financing segment, Aareal Bank maintained its selective stance regarding new business, originating transactions with very good risk-return profiles. The volume of new business (including renewals) totalled €6.6 billion at the end of September (30 Sep 2023: €6.5 billion). Newly originated loans accounted for €3.3 billion, with average gross margins remaining high at 280 basis points and conservative LTV ratios averaging 50 per cent. New business volume totalled €3.5 billion in the third quarter, a significant increase compared with the previous quarters.
The commercial property finance portfolio stood at €31.6 billion at the end of the third quarter (31 Dec 2023: €32.5 billion). The Bank affirms its full-year target for the total property financing portfolio of €33 to 34 billion.
Average loan-to-value ratios in the existing portfolio remained stable at 56 per cent. Average yield on debt (which indicates the debt-servicing capacity of the property financed) rose to 9.9 per cent (31 Dec 2023: 9.6 per cent), thus remaining at a solid level.
The Bank’s portfolio of green financings rose to €6.0 billion as at the end of September (31 Dec 2023: €4.8 billion).
In the Banking & Digital Solutions segment, the volume of client deposits from the housing and energy industries averaged €13.7 billion in the first nine months of the year, remaining above the originally expected level. The joint venture with Aareon got off to an encouraging start and continued to have a positive impact on client acquisition.
Net interest income in the segment rose by 19 per cent to €203 million in the first nine months (9m 2023: €170 million), of which €68 million was generated in the third quarter (Q3 2023: €59 million). The year-on-year increase reflects the strong volume of client deposits in conjunction with normalised interest rate levels.
Outlook
Based on its strong operating performance, Aareal Bank confirms its operating profit target range for the Bank of between €250 million and €300 million for the 2024 financial year, after expected one-off charges for efficiency enhancement measures in the fourth quarter. Given the gain that is to be recognised following the closing of the Aareon sale, consolidated net income for the 2024 financial year is expected to be around €2.2 billion.
Contacts for the media:
Christian Feldbrügge
Phone: +49 611 348 2280
Mobile: +49 171 8667919
christian.feldbruegge(at)aareal-bank.com
Thomas Rutzki
Phone: +49 611 348 2947
Mobile: +49 170 5431458
thomas.rutzki(at)aareal-bank.com
Contact for investors:
Aareal Bank AG – Investor Relations
Phone: +49 611 348 3009
ir(at)aareal-bank.com
