Pbb, the listed German pfandbriefbank, has significantly increased risk provisioning in its loan book and slashed its 2023 profit forecast.
Citing ‘persistent weakness in the commercial real estate market’, pbb Deutsche Pfandbriefbank said it had earmarked €104 mln of provisions for the nine months to the end of September 2023, an almost trebling compared with -€38 mln in the same period in 2022.
The bank also cut its anticipated profit before tax forecast issued at the beginning of 2023, from between €170 mln to €200 mln, to between €90 mln to €110 mln.
Given it had already banked profits of €91 mln in the first 3 quarters, this suggests that the European property lender anticipates a very quiet final quarter of the year.
In a nod to the likelihood of continuing falls in property values, CEO Andreas Arndt said the bank was now only expecting values to find a floor next year. ‘The process to discover a balanced market pricing level is clearly taking longer than expected’, he said. ‘This is why we decided to significantly increase risk provisioning in Q3.’
For years, German real estate banks have struggled with low return on equity, and Pbb has already announced that it is changing strategy to add investment management to its offer in a bid to increase return on equity before taxes to at least 10% by the end of 2026. Pbb said this ‘capital-light, commission-based business’ is on track and would help to achieve this.
In terms of its balance sheet and risk weightings, Pbb said this week that it will move to the so-called ‘Foundation Internal Ratings-Based Approach’ or F-IRBA after Basel IV comes into effect and ‘assumes that this will be the leading model standard in the future, particularly for commercial real estate finance.’
In the meantime, it will use the standard model which it added may cause a temporary reduction in Pbb’s Common Equity Tier 1 (CET 1) ratio.
