HSH Nordbank raises bank lending despite caution about quality

A higher-than-expected level of early repayments forced the hand of property lender HSH Nordbank in 2015, which saw it raising its level of new business last year from the budgeted €3.6bn to €4.5bn.

This year it plans to be more conservative and is targeting only €4bn in new business, according to Peter Axmann, HSH's global head of real estate, in a conversation with REFIRE at the recent MIPIM in Cannes. Axmann said he was uneasy about current price levels in Germany's booming market, and in particular about the rate of turnover of investment assets, a traditional signal of an overheating market.

Multiples being paid for multi-family residential portfolios were no longer fully risk-adjusted, in his view, with up to 19 times annual rent now not infrequent for very ordinary properties, he said.

HSH was obliged to raise lending in the course of 2015 in order to keep interest income stable, given the large amount of early lone repayments. Redemption quotas have normally been 20% at the bank, but given the low interest rate environment these have now risen to 30%, he said.

Axmann is not alone in exercising more caution in bank lending (we have carried stories in these pages recently from, among others, Helaba, Berlin Hyp and Deutsche Hypo – about the pressure on margins and a surge in early repayments). The banks are feeling the squeeze on their margins due to higher competition on the one hand, and the need to hold on to market share on the other.

HSH has fought its way back into the financing marketplace after having hefty restrictions imposed on it by the EU as a consequence of its state bailout during the financial crisis, and has re-opened a number of offices including Frankfurt. About 40% of its lending is to international clients, with a third going to project developments. Axmann said that the bank's structured financing with adjustable equity quotas, as well as faster decision processes on lending despite being more selective on quality, had helped it to raise its margins across much of its lending by 30 basis points.

Just before Easter the EU Commission gave the green light for HSH Nordbank to be privatised by 2018, after a lengthy period of negotiation. The parent bank has been struggling with more than €15bn in non-performing shipping loans. The deal with the EU sees HSH Nordbank passing €5bn of these NPLs to the state governments of Schleswig-Holstein and Hamburg, as well as selling €3.2bn further NPLs on the open market.