German banks' new business buoyant in first half, much tighter now

Several German banks have recently announced sizeable bumps in their real estate lending books, somewhat of a surprise given the pervading sense of doom and gloom on the financing landscape. Still, most seem to be drawing in their horns for a much more subdued second half-year.

Among those who've expanded their loan books in the first half, and look likely to do so for the full year, albeit cautiously, are Munich banks MünchnerHyp, BayernLB and pbb Deutsche Pfandbriefbank, while Aareal Bank and LBBW are among other banks boosting their lending.

In a survey published in May, property advisor JLL examined the domestic property lending of twelve banks in 2021, eight of which increased their new business in the COVID-recovery year of 2021. Of the eight, six said they expected new business in 2022 to be similar to the previous year, four expected an overall increase, and two banks expected to see a decline in their business volume.

Last year, the twelve German banks analysed increased their lending by an average of 8% compared to 2020 to a total volume of €39.7bn. Almost all institutions increased their loan portfolio. The most active real estate financier in absolute terms in 2021 was DZ Hyp with new business of €8.2 billion (+8%), followed by Landesbank Baden-Württemberg (LBBW) with €7.2 billion (+24%). Four banks extended less credit in 2021 than in the previous year. The largest decline in new business was recorded by Berliner Sparkasse with -37%.

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MünchnerHyp has said that its loan book rose 4.2% to €43.4bn since the beginning of the year. Its new lending rose by 15% to €3.5bn in the period in the period. Of this, €2.2bn was private residential lending, up 5%. The bank credits this with many private borrowers rushing to lock in good conditions before interest rates and building costs began to soar. The bank's other new business of commercial property lending rose 34% to €1.3bn, of which 80% was domestic. Overseas lending fell €31m to €269m. CEO Louis Hagen said lending in the second half would be more moderate, but that the bank would 'essentially' reach its new business goals.

Across town, BayernLB boosted its gross loan volume by 3.7% in the half-year, rising €2.4bn to €65.8bn. Of this amount, €32.5 billion was attributable to BayernLB itself and €33.3 billion to its subsidiary DKB. The increase in Bayern LB's loan portfolio amounted to €1.7 billion, of which €1.1 billion was attributable to the office asset class, €0.4 billion to logistics and €0.5 billion to institutional housing finance. In contrast, the volume of business declined in retail (-€0.1 billion) and in the other asset classes (-€0.3 billion). At DKB, financing of commercial asset classes, especially nursing homes, increased by €0.3 billion and financing for residential projects by €0.4 billion.

At pbb Deutsche Pfandbriefbank, the figures for the first six months of 2022 show the volume of new business in commercial real estate financing rose to €4.3 billion, while in the first half of 2021 it was €3.8 billion - in both cases including prolongations. The overall lending book rose to €28.4bn, up from €27.6bn at the end of 2021, due to high volumes of new business and a lower rate of early repayments. Again, bank chairman Andreas Arndt warned that for the second half, "New business is more likely to be at the lower end of original expectation - about €9.5bn of commercial property financing....Should a significant worsening of the crisis situation make it necessary, we will re-evaluate the situation."

Aareal Bank, which has traditionally had a higher rate of overseas lending than other German banks, boosted its new business volume in the first half by €5.2bn, up more than 50% on the same period last year /€3.3bn). CEO Jochen Klösges indicated that this new business was likely to make up the bulk of all new lending this year, which is targeted at about €7.5bn. At the same time the bank raised its bad loan provision in Q2 to €58m, well up on last year's €33m, "due to changed risk parameters and deteriorating forecasts for the overall economy".

There's no question the banks are scrutinising all loan applications with great stringency now, both for private and commercial lending. In private lending, the Bundesbank stated recently that banks had now tightened their lending criteria in Q2 more than at any time since the introduction of its quarterly "Bank Lending Survey" in January 2003.