Aareal ups new business on Q3 figures, warns on German lending

23 December 2016 10:00

Aareal Bank AG

German property financier Aareal Bank has raised its full-year forecasts on solid Q3 results, and said it expects to generate between €8bn and €9bn in new business this year, somewhat more than it had originally planned (up to €8bn), the bank said in its recent quarterly press briefing.

However, the bank continues to warn on the climate for new business lending in Germany, and is putting the brakes on domestic lending in favour of stronger engagement in the USA, where it has a long-established business.

New lending by the Wiesbaden-based bank is being increased this year largely due to the effect of early redemptions and higher capital repayments, which has seen the bank's overall lending book in its core business fall from €26.8bn to €25.5bn in the third quarter.

According to CEO Hermann Merkens this is likely to be closer to €25bn at year-end as borrowers take advantage of low interest rates to compensate with faster capital repayments – albeit penalties on these early repayments brought in an extra €32m for the bank over the first three quarters.

Merkens said the bank was raising its forecast for full-year operating profit from €330m to €360-380m, thanks to such penalty fees and the recent successful outcome of a litigation case taken by hedge funds against the bank's subsidiary Corealcredit Bank.

Merkens has been outspokenly cautious about the German market, saying that he only sees real growth potential in areas outside classical bank lending. In a recent interview in the "Euro am Sonntag" newspaper, Merkens said the market for German commercial property financing was currently too competitive, and risky for lenders.

"The risk profile in Germany for our desired new business lending has not developed in a way which we now find acceptable", he said, with the bank shifting its focus more to the USA. "In the medium term we want to grow our US financing portfolio from its current €5.8bn to €6.0-6.5bn, bringing it up to about a quarter of our total portfolio."