Berlin Hyp Continues on Successful Course in the First Half of 2022

Berlin Hyp continued its successful development during the first half of 2022 and thus proved the solidity of its business model in a difficult market environment, as demonstrated by the accounts of the short financial year from 1 January to 30 June 2022. Despite the increased bank levy and the expenses for the teaming up project with the new group parent company, the result before profit transfer amounted to €30.0 million as of the reporting date 30 June 2022 (30/06/2021: €30.0 million), and thus exceeded expectations. The new lending volume including extensions amounts to €3.1 billion (30/06/2021: €2.9 billion) and net interest and commission income was at €270.0 million (30/06/2021: €233.8 million).
Therefore, the main performance indicators were further increased in the first half of 2022. Despite the Russia-Ukraine conflict, no significant loan defaults were recorded, however, the interest-induced exchange rate losses caused negative result in effects in the securities portfolio.
The sale of all shares in Berlin Hyp by Landesbank Berlin Holding to Landesbank Baden-Württemberg (LBBW) was concluded. Since 1 July 2022, the Bank has been fully owned by the LBBW Group. However, it will continue its business activities under the Berlin Hyp brand as an independent institution. The cooperation with LBBW may bear considerable potential for Berlin Hyp’s business.

“In the current market environment, our successful development is more important than ever to prove the solid focus of our business. At the same time, it helps strengthen the very good foundation. However, the effects caused by the geopolitical and economic framework conditions cannot be fully foreseen at this time. Without prejudice thereto, Berlin Hyp joining the LBBW group presents great opportunities for our business development. With our Berlin Hyp brand, we have a pioneering role and continue to focus on and promote sustainability and digitalisation as well as the S-Group business with savings banks,” says Sascha Klaus, Chair of the Board of Management of Berlin Hyp.

New Lending above Previous Year’s Level, Position as an S-Group Partner of Savings Banks Strengthened

Berlin Hyp’s new lending volume in the first half of 2022 was €3.1 billion, and therefore slightly exceeds previous year’s level (30/06/2021: €2.9 billion) despite the market uncertainties. Extensions accounted for €0.3 billion (30/06/2021: €0.4 billion) of this contracted new lending, while newly issued loans accounted for €2.8 billion (30/06/2021: €2.5 billion). Of the total new lending volume, 72 per cent (30/06/2021: 71 per cent) referring to properties in Germany; in the first half of the year, France was the largest international market with a share of 12 per cent (30/06/2021: 7 per cent) in new lending, followed by Poland and the Netherlands. With a share of 69 per cent (30/06/2021: 85 per cent), the largest part of new lending was attributable to investors, another 20 per cent (30/06/2021: 15 per cent) was realised with construction enterprises and developers, and eleven per cent (30/06/2021: zero per cent) with housing companies.

The business expansion with savings banks continued. The number of business relationships rose to 168 savings banks in the first half of 2022 (30/06.2021: 161 savings banks). Berlin Hyp once again expanded its range of products and services, thus fulfilling the request of the savings banks for more diversification and additional services. The S-Group business generated an amount of more than €0.8 billion in the first half of 2022 (30/06/2021: €1.1 billion).

The total portfolio of loans Berlin Hyp placed with savings banks went up to €4.5 billion (30/06/2021: €4.0 billion).

With Regard to Individual Results:

Interest Income Increased Significantly

In the first half of 2022, net interest income amounted to €258.6 million (30/06/2021: €220.8 million) and exceeded expectations. The positive development is mainly the result of the mortgage portfolio, which increased considerably to €1.4 billion, and of one-off effects from derivative transactions.

The net commission income of €11.4 million was slightly lower than the previous year’s figure (30/06/2021: €13.0 million) and was in line with expectations.

Operating Expenditure Affected by One-Off Effects

In the first half of 2022, operating expenditure, at €116.7 million, which comprises staff expenditure, other operating expenditure, depreciation on tangible assets and amortisation of intangible assets was, as expected, up slightly from the previous year’s figure (30/06/2021: €94.3 million). An increase was actually forecast, taking into account strategically relevant projects in the course of digitalisation and modernisation of IT systems. The item also included expenses required in connection with the teaming up process with LBBW.

Staff expenditure increased by €4.7 million to €49.9 million due to higher pension obligations. Other operating expenditure increased to €61.9 million in comparison to the previous year (30/06/2021: €44.4 million). For the most part, they comprise the annual payment of the European bank levy, which once again was marked up considerably by €9.1 million to €25.5 million and which is completely included in the operating expenditure. Write-offs on fixed assets and intangible assets saw a slight increase to €4.9 million (30/06/2021: €4.7 million). The other operating result amounted to €-11.8 million (30/06/2021: €-3.0 million). It mainly comprises the real estate acquisition tax expenses expected from the sale of Berlin Hyp and further additions to provisions and interest portions, above all from the compounding of pension reserves.

The increase in operating expenditure and the deterioration in the other operating result led to an increase in the cost-income ratio by 4.3 percentage points to 45.2 per cent (30/06/2021: 40.9 per cent), despite the increase in net interest and commission income.

Risk Provisioning Result Higher

In the first half of 2022, again Berlin Hyp did not have any significant loan defaults, despite the fact that in particular the impacts of the Russia-Ukraine conflict constituted a considerable burden for the economic environment. The net allocation to lending risk provisioning amounted to €6.7 million (30/06/2021: €13.1 million). Interest-induced

valuation results for securities in the liquidity reserves resulted in an expenditure of €54.7 million due to exchange rate losses, which are partially compensated by one-off effects in net interest income. The net income in the same period in the previous year was €15.6 million.

Equity Position Strengthened through Further Additions

The common equity tier 1 ratio is 14.0 per cent (30/06/2021: 13.9 per cent) and the total capital ratio is 15.9 per cent (30/06/2021: 16.1 per cent), taking into account the approval of the annual accounts. The special item for general bank risks pursuant to Section 340g of the German Commercial Code (HGB) was increased by another €50.0 million (30/06/2021: €112.0 million). This fund amounted to €725.0 million as of the reporting date.

Pioneering Role in Sustainability Confirmed

In the first half of 2022, Berlin Hyp put a lot of effort into the implementation of its ambitious sustainability agenda. In this context, it confirmed its position as a pioneer in the Green & Sustainable Finance segment and published its new Sustainable Finance Framework. This framework provides an overarching approach to classifying our sustainable financing products on a holistic scale. Currently, the Green Loan portfolio comprises the energy-efficiency loan, the taxonomy loan and the transformation loan.

Still Most Active Issuer of Green Bonds

Not only did Berlin Hyp generate record demand with the first Social Bond, but it was also the first bank in Europe to issue three ESG categories. The proceeds from the Social Bond are the foundation to finance affordable housing in Germany and the Netherlands. In total, the Bank issued debt instruments with a volume of €2.4 billion in the first half of 2022. With a total of four benchmark transactions, the Bank is a regular issuer on the syndicated bond market and, with 15 outstanding euro issues, Berlin Hyp remains the most active issuer of Green Bonds in Europe in the commercial banking segment.

Digitalisation of Core Processes Progressed

At the same time, the further digitalisation of the core processes and the modernisation of the IT system environment were pushed forward. Key milestones were also achieved as part of the alignment of the IT architecture with a complete digital platform that partially automates all essential processes, from initial customer contact to external reporting. For example, part of the digital loan application process, from financing application to approval, went live. The development of the “Know Your Customer” tool for technology-based credit checks in real estate transactions made progress, as well. It is planned to go live in the second half of 2022. The computer-based software tool for the valuation of properties “WE Digital” is being used. It generates results for value indications at the push of a button, using smart data and artificial intelligence.

“We aim at becoming the most modern commercial real estate financier in Germany. On the one hand, we wish to present the Bank’s key business processes in a digital, data-driven and partially automated manner. On the other hand, for Berlin Hyp, sustainability means not only reducing its own carbon footprint, but also promoting, simplifying and financing the transition to a sustainable economy and in this manner contributing to the transformation that is currently under way – not only in terms of ecology but also with regard to the economy and society as a whole,” Sascha Klaus elaborates.

Outlook

Increasing energy prices and imminent supply shortages, high inflation and rising interest rates will also shape the next few months. The uncertainty related thereto is reflected in the forecasts, as well: For the second half of 2022, Berlin Hyp expects new lending business to be slightly below the successful level reached in the first half of 2022. The operating result before income taxes and profit transfer will likely reach the level of the first half of 2022 and therefore be above 50 per cent of the 2021 result.

Technological innovations contribute to strengthening the Group, as the expanding business relationships with savings banks across all regions is also attributable to the digital platform “ImmoDigital”, where – so far – only the product “ImmoAval” has been offered. The aim is to achieve completely digital processing for all S-Group products in the fourth quarter 2022.

The change in ownership also holds great opportunities for Berlin Hyp. This creates a centre of expertise for commercial real estate financing within the Savings Bank Finance Group, Berlin Hyp’s customers are granted access to an even broader range of products of a universal bank. At the same time, Berlin Hyp will play an important role within the Group with its strengths in sustainability and digitalisation and its innovative operating procedures.

The full report for the current short financial year from 1 January to 30 June 2022 is available at www.berlinhyp.de.