Aareal Bank reports a clearly stronger position at the close of 2005s fourth quarter. Consolidated net profit for the Aareal Bank Group after minority interests was €20 million for the quarter, compared to a net €15 million loss for the same period in 2004. The strategic realignment embarked upon in April 2005, which is reflected in a six-point programme, was a significant factor in the course of business last year. The results reflect our clearly-defined profit target for 2006: we will restore the banks ability to pay dividends", said Dr. Wolf Schumacher, Chairman of the Management Board of Aareal Bank AG.
In another positive development, the core capital ratio according to the German Banking Act improved to 8.4% (30 Sep 2005: 8.1%), and the total capital ratio rose to 14.5% (14.1%). According to BIS rules, the core capital ratio rose to 7.2% after 6.9%, and the
total capital ratio to 12.6% after 12.2%. Aareal Bank intends to retain future profits to continue strengthening its capitalisation. In parallel, expediting the reduction of risk assets outside the banks strategic business will extend the scope for profitable new
business: With the continued expansion of our core strengths, we are well-positioned for a sustained improvement in results, Schumacher added.
New business boosted
Aareal Banks new business grew by 25%, to €7.1 billion. International new business rose by 31%, to €6.1 billion, whilst at €1 billion, new business in Germany was fully in line with the banks projections. International business accounted for around 85% of total new loan commitments. Schumacher emphasised that the significant growth in new business reflects the solid position of Aareal Banks domestic and international distribution network in the property markets covered. He added that the opening of a representative office in Turkey as the first property bank to become established there and initial loan commitments in markets such as the Peoples Republic of China, and Mexico, also underlined Aareal Banks continued expansion of its international business, designed to further diversify the loan portfolio: We will segment our target markets by economic region, rather than on the basis of political borders, in the future. As a first step in this direction, Aareal Bank will join its forces in Scandinavia and the Baltic States to form a Nordic hub.
Reduction of the NPL portfolio
Aareal Bank carried out a comprehensive review of its loan portfolios during the 2005 financial year. This exercise resulted in write-downs on claims and provisioning requirements totalling €273 million, which has impacted significantly on the results in the financial statements presented. Having recorded net losses after minority interest of €55 million for the year 2005, Aareal Bank Group expects its risk costs to return to a normal level from the 2006 financial year onwards. Aareal Bank reduced its portfolio of non-performing loans to €2.085 billion during the year under review, through two NPL portfolio sales combined with additional disposals of individual exposures.
Leveraging Aareal Banks mid-sized corporate structure
The sale of Aareal Hypotheken Vermittlungs GmbH and Aareal Hypotheken Management GmbH, plus the closure of Via Capital Ltd. marked the first achievements in reducing the level of complexity within the Group. Moreover, the mortgage bank subsidiary Aareal Hyp AG was merged into its parent, Aareal Bank AG, at the beginning of the current financial year, with retrospective effect from 1 Jan 2006. This measure will considerably expand the scope of Aareal Bank AGs funding mix, making full use of the opportunities available under the new German Pfandbrief Act (Pfandbriefgesetz), which came into force in the summer of 2005. The banks medium-term objective is to increase the share of mortgage bonds relative to Aareal Bank Groups entire volume of property financing from currently 10%, up to between 40% and 60%. Having successfully placed its first Jumbo Pfandbrief issue at the beg