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21.03.2017

2016 produces highest ever levels of new business and best financial performance to date for DG HYP

Significantly increased operating result year-on-year - Marked increase in new business volume - Three benchmark bonds placed

DG HYP has had a successful financial year 2016. “Despite increasing regulatory requirements and a challenging competitive environment, we have strengthened our leading position in the market as a provider for commercial real estate financing. We also achieved our hitherto best new business volume result to date, whilst adhering to our cautious risk policy. The bank’s financial performance developed favourably, and was significantly above the previous year’s level. Once again, the result reflects the bank’s long-standing positive operating performance”, said Dr Georg Reutter, DG HYP’s Chairman of the Management Board.

Pronounced growth in new business
In 2016, DG HYP took advantage of the positive macroeconomic fundamentals which led to continued intensive demand for commercial-use properties and residential real estate. The bank generated a new business volume of €7.4 billion in Commercial Real Estate Finance (2015: €5.7 billion) – implying a growth rate of 29.6 per cent – of which the core German market accounted for €7.1 billion (2015: €5.6 billion) and foreign markets for €278 million (2015: €85 million). DG HYP successfully maintained cooperation within the Volksbanken Raiffeisenbanken cooperative financial network during the year under review. Joint lending business with the cooperative banks was extended once again, and totalled €3.2 billion in the year under review (2015: €2.8 billion), representing a year-on-year increase of 11.8 per cent. At present, DG HYP is working together with more than 400 cooperative banks in this business.

Commercial real estate lending portfolio increased
DG HYP's total assets in the 2016 financial year were reduced by a further €3.1 billion (-7.8 per cent), to €36.7 billion. The portfolio of real estate loans increased by €1.0 billion to €19.7 billion, in line with the bank's strategy. This development was due mainly to an increase in the commercial real estate finance portfolio and, despite the persistently higher unscheduled repayments, the volume of new business realised exceeded expectations.

Significantly increased operating result year-on-year
As a result of the increased portfolio of real estate loans, net interest income in this segment rose to €270.4 million (2015: €263.1 million). At €41.3 million, the net commission result – which is generated in particular through servicing fees in Commercial Real Estate Finance – outperformed the previous year's figure of €29.4 million. A key contributing factor here was higher commission income from the lending business. Administrative expenses increased slightly in the year under review, reaching €120.9 million (2015: €116.4 million), as the growing regulatory requirements could only be met by allocating the requisite resources; this included the recruitment of new employees.

Overall, DG HYP’s risk provisioning developed well in the 2016 financial year: no specific material provisions needed to be recognised. In order to compensate for potentially higher loan defaults in future downturns, DG HYP has recognised general risk provisions pursuant to section 340f of the HGB (€62.5 million), thus more than offsetting the positive risk provisioning. At €208.6 million, the operating result significantly surpassed not only the previous year’s figure of €143.4 million (by +45.5 per cent), but also the bank's own projections.

Three benchmark bonds placed in 2016
Pfandbriefe were an attractive investment opportunity in the 2016 financial year too, thanks to the marked yield differential over German Bunds, the comparatively low spread volatility, and the high quality. DG HYP took active advantage of this market environment, placing – as it had done in the previous year– three benchmark bonds totalling €1.5 billion with investors. With terms of 6.6 years, 8.1 years and 9.9 years, demand for the Mortgage Pfandbriefe was exceptionally buoyant. Despite the low – and at times negative – interest rates, DG HYP issued an additional €137.5 million in private placements (2015: 207.0 million).

Sound results expected for 2017
“The current market environment is being influenced by positive and negative factors. While we continue to guide for a favourable business environment, investment rate development will probably no longer stimulate it”, Reutter explains. Nevertheless, the demand for tangible assets such as real estate is likely to remain high in the absence of profitable alternative investments, even though the peak on the transaction market was already reached in 2015. “For 2017 we anticipate a decent, albeit lower, result than in the previous year for DG HYP.”

On 4 April, we will publish the complete annual report on our website www.dghyp.de.

DG HYP: key financial indicators
(in accordance with the German Commercial Code)

(€ mn)20162015Change in %
New Commercial Real Estate Finance business7,4185,72229.6
Business originated jointly with cooperative banks3,1592,82511.8
Total assets36,69639,821-7.8
Commercial real estate lending portfolio19,74218,6745.7
Net interest income270.4263.12.7
Net commission result41.329.441.4
Administrative expenses 120.9116.43.9
Risk provisioning -2.864.3>-100.0
Operating result208.6143.445.5
Cost/income ratio 38.6 %44.4%-13.1
Number of employees4654542.4

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