Germany's Pfandbriefbanken 'holding up well' through pandemic - vdp

Germany's Pfandbrief-issuing banks are coming through the pandemic crisis well and are adapting to business realities, according to the Association of German Pfandbrief Banks (vdp), whose president, Louis Hagen, was addressing the recent annual press conference.

Hagen said the association, with its 49 member institutions who together represent 97% of the total volume of Pfandbriefe in circulation, said its members were showing close cohesion through the pandemic in keeping the real estate business cycle going.

"Thanks to their prudent business policy, the Pfandbrief banks have so far come through the COVID-19 crisis well, as can be seen from the continued high level of lending, the increased loan portfolio and the low deferral figures", he said. "In order to be prepared for all eventualities, the institutions have increased their general loan loss provisions, in some cases significantly, and the Pfandbrief banks still have comfortable equity ratios. They are thus well equipped to continue to cope well with the consequences of the pandemic." 

The Pfandbrief, said Hagen, has again confirmed its importance as an anchor of stability in turbulent times. It remains a reliable and competitive source of funding even during the pandemic. Issuers can obtain long-term liquidity via the Pfandbrief at any time. It performs significantly better than other covered bonds. Since the onset of the pandemic, spreads widened only moderately at the beginning of the pandemic and have now been back at pre-crisis levels for some time. At the same time, investor demand remains high, even outside of the central banks.

Hagen provided figures for the year 2020. Pfandbriefe with a volume of €59.8bn were issued, a rise of 8.7% compared to the previous year (2019: €55.0bn). At around €31 billion, slightly more than half of the Pfandbriefe issued were retained, for example to be deposited as collateral with the Bundesbank. 

Of the different classes of Pfandbrief, mortgage Pfandbriefe continued to be by far the most important Pfandbrief class with new issues of €40.7 billion (2019: €43.8 billion). At €19.1 billion (2019: €11.2 billion), the issuance volume of public Pfandbriefe in 2020 was higher than at any time since 2011. The volume of Pfandbriefe in circulation increased to €371.9 billion in 2020 (2019: €364.1 billion). The volume of outstanding mortgage Pfandbriefe rose again, from €242.3 billion in 2019 to €248.5 billion. For the first time in 20 years, the volume of Public Pfandbriefe in circulation also increased again, from €121.8 billion to €123.4 billion.

The total real estate lending outstanding grew by 4.5% to €904.0 billion at the end of the year (2019: €865.0 billion). New mortgage loan commitments declined slightly by 3.6% and amounted to €162.3 billion last year (2019: €168.4 billion). Residential real estate again proved to be the most sought-after asset class, with loan commitments increasing by 8.1% to €108.3 billion (2019: €100.2 billion). 

Commercial real estate and thus also its financing, on the other hand, is more sensitive to crises, including the pandemic, said Hagen. Countless projects got postponed, although the lending banks did extend €54.0 billion in commercial real estate loans, 20.8% less than in the previous year (2019: €68.2 billion). 

Nevertheless, there were signs of a noticeable recovery at the end of the year: "In the fourth quarter of 2020, the financing volume for commercial real estate rose to €16.0 billion and was thus back at the average level of the quarters in the past three years. A further increase in the financing volume is to be expected in the event of an economic recovery, then both user demand and the construction of new commercial properties will increase again."

Loan deferrals remained at a low level throughout 2020. While at the end of June they still stood at 2.1% (residential/private customers) and 2.2% (commercial properties) of the loan portfolio, the figures fell to 1.2% (residential/private customers) and 1.1% (commercial properties) as at 31 December 2020.

As widely observed elsewhere, the vdp president confirmed that the COVID-19 pandemic did not reverse the upward trend in property prices. The vdp property price index reached a new high of 172.8 points (+6.0%) at the end of 2020, putting the increase in property prices in the pandemic year 2020 almost on a par with 2019, when there was growth of 6.3%. At the end of last year, residential property prices were 7.5% higher than a year earlier, while commercial property prices rose slightly by 0.6%.