Deutsche Pfandbriefbank raises bad debt provision on tougher lending

With the German economy battening down the hatches for tougher times ahead, Munich’s pbb Deutsche Pfandbriefbank is the first bank to acknowledge that it is setting aside higher provisions for bad debts on loans it has made in its 2019 figures, and will do the same for 2020, reflected in its full-year results. Lending on hotels and retail property in particular will be curtailed.

The bank has increased its bad debt provision from €14m to €49m in its current figures, with €20m attributed to general valuation write-downs as a result of worsening economic conditions. The bank’s overall pre-tax surplus of €216m exceeded last year’s €215m minimally, thanks to higher spreads (€450m to €458m) and premature capital repayments of €39m, up from €16m.

The bank wrote €9.3bn of new real estate business, of which €9bn was commercial property financing (down from last year’s €9.5bn). Pure new business, excluding prolongations, was €7.1bn (down from €7.3bn), mainly in Germany (47%), the USA (15%) and France (12%). The German share is likely to rise to 50% this year, said Co-CEO Andreas Arndt at the recent annual press conference.

Gross margin on lending was an average of 155 basis points in 2019, the same as the year before, which Arndt described as a “considerable performance”. This is likely to be somewhat less this year, he indicated. Overall new lending for 2020 will be between €8bn and €9bn, he suggested, with the first couple of months of the year on track for that target, he said. Dividends for shareholders are to be shaved by ten cents to €0.90, down from last year’s €1.00. The first half will also see the bank issue its first green bond, said Arndt.