Real estate finance drives Pfandbrief banks’ lending business – Pfandbrief sales stabilizing

  • Loan commitments in real estate finance up last year by a further 6.3% to €107.7 billion – new business overall rose by 5.5% to €135.6 billion
  • New issue volume of Pfandbriefe down only moderately in 2014
  • vdp President Jan Bettink: Pfandbrief and its issuers held their own even in a changing market and competitive environment

New loan commitment activity of the Pfandbrief banks which belong to the Association of German Pfandbrief Banks (vdp) were up once again last year. New loan commitments overall came to €135.6 billion, which was equivalent to an increase of 5.5%. This growth was driven yet again by real estate loans, which were 6.3% higher year on year and totaled €107.7 billion. “In view of the stable macroeconomic development and the exceptionally favorable funding conditions, investment in real estate and, consequently, demand for real estate funding continued to rise. Competition, including competition with new groups of providers, is growing steadily. Nevertheless, the rising new business figures illustrate that the Pfandbrief banks are making the most of the opportunities that present themselves in the market and are able to maintain their position as reliable financing partners to the real estate sector,” said vdp President Jan Bettink.

The growth in real estate finance is attributable to both residential and commercial property business. In residential real estate finance, new loan commitments rose by 8.8% to €52.8 billion. The financing of commercial real estate went up by 4.0% to €54.9 billion. In the public sector lending business, by contrast, the consolidation that has been observed for a number of years continued: in 2014, new loan commitments in this sector fell by 5.2% compared with the previous year to €18.6 billion. Above all, the regulatory changes that have come into effect since the financial market crisis have made public sector lending unattractive for many banks. However, the vdp believes that lending to the public sector will remain an important pillar for Pfandbrief banks, although this will increasingly take the form of traditional, small-scale lending to local authorities, and that Pfandbrief banks will differentiate more strongly according to the resilience of public sector borrowers.

New issue volume of Pfandbriefe is stabilizing

Pfandbrief sales in Germany are stabilizing appreciably. Following the, in some cases, markedly stronger declines in new issue volumes in the preceding years, the volume of new Pfandbrief issues dropped only moderately last year to €45.8 billion (2013: €49.5 billion). A new issue volume at roughly the 2014 level is expected for the current year.

The Pfandbrief sales figures for 2014 may be broken down as follows: €29.1 (33.6) billion – and again around two-thirds – was accounted for by Mortgage Pfandbriefe, €15.3 (15.6) billion by Public Pfandbriefe and €0.9 (0.3) billion by Ship Pfandbriefe. After a pause in issuing activity in 2013, the Aircraft Pfandbrief category which was first launched in 2012 accounted for a volume of €0.5 billion last year. Large-volume issues are still experiencing a positive trend. In 2014, there were 30 (2013: 26) such benchmark issues with a combined volume of €19.6 (16.6) billion.

The total volume of Pfandbriefe outstanding fell to €402.2 billion as at 31 December 2014 (2013: €452.2). Of this amount, €189.9 (200.3) billion was accounted for by Mortgage Pfandbriefe, €206.5 (246.0) billion by Public Pfandbriefe, €4.8 billion by Ship Pfandbriefe and €1 billion by the Aircraft Pfandbrief. The drop in the volume of Pfandbriefe in circulation is the result of a structural shift. Above all, it is due to high maturities, notably in the case of Public Pfandbriefe, whereas the corresponding new issue volume was down in absolute terms. The latter is the result, not least, of the European Central Bank’s continued expansionary monetary policy stance, which enables banks to raise liquidity from other sources at comparatively favorable conditions.

“Notwithstanding the market environment, which is characterized by historically low interest rate levels, the Pfandbrief maintained its position as an attractive and – for more and more banks – a strategically important element of a sustainable refinancing mix. Viewed from this perspective, the present Pfandbrief sales are satisfactory – all the more as we are expecting stable sales volumes for the years ahead and, associated with those, a medium-term stabilization of the volume of Pfandbriefe outstanding,” the vdp’s President Jan Bettink pointed out.

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