Investor demand for more green capital markets products and the German bank’s desire to raise its own sustainability profile are behind the drive.
German pfandbriefbank Deutsche Hypo has launched a campaign to explain a new green loan product to borrowers.
The bank, which has a circa €13 bn loan book and made €2.9 bn of new loans last year, intends to spread the word more widely after launching a green pfandbrief bond programme which only includes green loans in its asset pool.
There are several factors behind the push: Deutsche Hypo wants to continue to improve its own sustainability credentials; it is responding to a desire from bond investors for more green capital markets investments; and last but not least, as a result of that investor demand the bank believes that green bonds should result in cheaper funding.
Speaking last month at Mipim, Sabine Barthauer, the bank’s management board member for real estate, told PropertyEU: ‘We are launching green loans more widely after Mipim and explaining the product to our clients. At the moment, clients do not have an incentive to improve and to be more transparent (with their lenders).
‘We are saying: if we get more transparency on your sustainable investments and all the documentation, we could incentivize your loan.’
Deutsche Hypo is the latest of a growing number of European banks which have built green lending secured against real estate into their businesses, including Lloyds in the UK. and ING. Last month ING made what it claims is the first sustainable improvement loan in Madrid, for Colonial.
Energy-efficient mortgages
Deutsche Hypo is a member of the EU Horizon 2020 funded EeMAP Initiative which aims to create a standardised energy-efficient mortgage that will incentivise landlords to improve the energy efficiency of their buildings or buy already energy-efficient properties, by way of preferential financing conditions.
These could be either lower interest rates and/or an increased loan amount, reflecting the reduced credit risk of these loans. Barthauer says a realistic margin reduction for Deutsche Hypo borrowers is 5-10 basis points.
The Hanover-based bank is a big lender on development across property asset classes, so is well-placed to encourage energy-efficient design. ‘They are usually bigger projects, €50 mln-plus, because we want core assets’, she explained. ‘We have long-term relationships with institutional investors from our treasury side who buy our pfandbrief or our private placements and they like us to invest in debt in core deals.’
Deutsche Hypo’s processes for evaluating and selecting a building as green focus on energy efficiency and include maximum energy consumption per square metre per year, which is flexible depending on building type and age. For example, it is 50 kWh for new residential properties, but 75 kWh for older ones. Assets do not have to be buildings which already have an energy performance or sustainability certificate. Instead a valuer’s detailed statement could be enough - part of the transparency Barthauer aims to promote.
Oversubscribed issues
So far, the bank has issued two green bonds, raising €1 bn of pfandbrief funding and €64 mln of senior funding from investors in Germany, the Netherlands, Luxembourg, the Nordics and France. The first €500 mln green pfandbrief in November 2017 was two-times oversubscribed and priced at minus 14 bps to mid swap, a coupon of 0.125%. The second last September, received 30 orders of €640 mln and priced higher, at minus 8 bps to mid swap, issuing a further €500 mln at a 0.25% coupon. Both were for six-year money. All the net proceeds are used exclusively to finance energy-efficient buildings.
In a report on green bonds produced by the bank last November, head of treasury Dirk Schönfeld said that although the bank has initially been unable to achieve an advantage in terms of funding costs, it believes this will come.
Separately, Barthauer said she could not comment on reports that profitable Deutsche Hypo may be sold. Ongoing problems with shipping loans mean its parent, Norddeutsche Landesbank, is going through another recapitalisation, with shareholders supposedly stumping up €3.7 bn.
