Rising provisions against souring loans continue to hit pbb Deutsche Pfandbriefbank’s pre-tax profits, slashing the latest figure for the nine months to 30 September 2020 from €187 mln (2019) to €106 mln.
Announcing its third-quarter results, the listed German real estate lender said it had made a further provision of €14 mln in Q3, reflecting dropping valuations on UK shopping centres, and taking provisions so far this year to €85 mln.
These provisions are already ‘significantly higher’ the bank said, but are small in relation to a total outstanding book of €32.7 bn. However, CEO Andreas Arndt added that concerns remain ‘about the impact of a second lockdown and structural changes in the real estate market brought about by the COVID-19 pandemic.’
Pbb is not issuing full-year guidance due to the uncertainty in relation to pandemic.
Lending volume was also down compared to previous years at €4.3 bn for the nine months. In the whole of 2019 the bank lent €9.3 bn against €10.5 bn in 2018.
New real estate lending business, including extensions of more than one year, in Q3 was €1.6 bn. ‘Lower early repayments and higher long-term extensions continued to offset the decline in new commitments due to the pandemic,’ pbb said.
A silver lining as a result of the current uncertainty is that the bank is able to charge higher margins which is supporting profits. The average margin this year exceeded 180 bps compared to 160 bps over the same period last year.
The bank said that the main changes in the market environment due to the Covid pandemic are that: ‘Investor demand and the demand for rented space have fundamentally deteriorated, with the hotel and retail sub-markets – except for food retailing - particularly hard hit. In this environment, pbb with its risk-conservative strategy is taking an even more selective approach.’
In terms of new regulation, pbb has already recalibrated its risk weighted assets (RWAs) to expected Basel IV levels. The introduction of Basel IV has been delayed slightly because of Covid.
