DVB Bank posts losses of 27.3 million euros on shipping finance exposure


DVB Bank SE, the international transport finance specialist, posted a consolidated net loss before taxes of EUR27.3 million for the first nine months of 2016 (previous year: net income of EUR92.2 million).

Ralf Bedranowsky, CEO and Chairman of DVB Bank SE’s Board of Managing Directors, commented on DVB’s consolidated results:

“Underscoring the continued focus on its core international transportation markets, DVB closed a total of 102 transactions generating EUR4.2 billion in robust and valuable new business volume (previous year: 137 transactions with a volume of EUR5.0 billion). Net interest income rose to EUR168.4 million (previous year: EUR151.6 million). New business in Aviation Finance and Land Transport Finance continued to develop successfully. In the persistently difficult segments of the shipping industry, the Bank continues to be available to current clients, and selected new clients – given reduced opportunities to originate new business, however, on a lower level. The Bank maintained its successful path in the fee and advisory businesses, increasing net fee and commission income by 3.8% to EUR79.8 million (previous year: EUR76.9 million). Moreover, DVB managed to keep general administrative expenses of EUR134.3 million stable in line with the previous year (EUR133.7 million) – in spite of continued high expenses incurred from regulatory-driven projects.

Results were burdened by two factors:

On the one hand, allowance for credit losses rose to EUR156.9 million (previous year: EUR62.7 million) and was largely required for legacy exposures in the Shipping Finance portfolio and for financings in the Offshore Finance portfolio. Both have been suffering from the severe and prolonged crisis in their respective markets.

The material market developments can be summarised as follows:

– There is ongoing and high tonnage overcapacity in numerous international shipping segments. In the recent past, governmental policies and speculative exuberance have led to a high number of newbuild orders especially at Chinese and Korean shipyards.

– Due to the influx of this new tonnage, charter rates have continued to decline: Offshore shipping charter rates have been under pressure since 2015 and in the first half of 2016, bulk carriers witnessed the lowest earnings since the shipping crises in the eighties. Container vessel charter rates have also been negatively affected during the last quarter due to this structural oversupply. Vessel values have developed correspondingly.

– These market distortions, which prevailed into the third quarter of 2016, heavily burdened the liquidity cushions of shipping clients, with increasing effects upon the banks involved.

– The geopolitical developments in the Eastern Mediterranean imposed an additional burden for specific shipping markets during the third quarter of 2016.

DVB responded to these developments by recognising additional allowance for credit losses during the third quarter of 2016.

On the other hand, net income from financial instruments in accordance with IAS 39 amounted to EUR13.8 million (previous year: EUR76.3 million) due to the non-recurrent nature of a substantial income in the previous year, which was generated in the Bank’s Aviation Investment Management activities.”

The individual components of the nine-month results developed as follows:

Net interest income increased by 11.1%, from EUR151.6 million to EUR168.4 million, mainly driven by robust and valuable new business. Allowance for credit losses amounted to EUR156.9 million (previous year: EUR62.7 million). New allowance recognised for credit losses totalled EUR276.1 million, EUR234.1 million of which in Shipping Finance and Offshore Finance. Conversely, allowance for credit losses of EUR117.6 million was reversed, of which EUR98.4 million in Shipping Finance and Offshore Finance. Net interest income after allowance for credit losses amounted to EUR11.5 million (previous year: EUR88.9 million). Total allowance for credit losses (comprising specific allowance for credit losses, portfolio-based allowance for credit losses, and provisions) rose to EUR406.0 million, up 39.1% from year-end 2015 (EUR291.8 million).

Net fee and commission income, which primarily includes fees and commissions from new Transport Finance business, asset management fees, and fees generated from Corporate Finance advisory mandates, was up 3.8%, from EUR76.9 million to EUR79.8 million.

Results from investments accounted for using the equity method increased from EUR3.8 million to EUR6.4 million.

Net other operating income/expenses amounted to EUR6.6 million (previous year: EUR-5.1 million), driven mainly by income from the deconsolidation of subsidiaries.

General administrative expenses rose by 0.4%, to EUR134.3 million (previous year: EUR133.7 million). Staff expenses increased by 5.6%, to EUR82.9 million (previous year: EUR78.5 million). During the period under review, the number of active employees grew by 22 to 616. Non-staff expenses (including depreciation, amortisation and write-downs) declined by 6.9%, from EUR55.2 million to EUR51.4 million.

Net income from financial instruments in accordance with IAS 39 (comprising the trading result, the hedge result, the result from derivatives entered into without intention to trade, and the result from investment securities), which is generally volatile, amounted to EUR13.8 million (previous year: EUR76.3 million). The previous year’s figure included substantial non-recurring income from the sale of investment securities, due to the disposal of the stake in Wizz Air Holdings Plc. This one-off effect generated in the Bank’s Aviation Investment Management activities was not repeated during the same reporting period in 2016.

Consolidated net income/loss before bank levy, BVR Deposit Guarantee Scheme, and taxes totalled EUR-16.2 million (previous year: EUR107.1 million). Estimated bank levy charges of EUR6.3 million (2015: EUR3.3 million in bank levy actually paid) as well as EUR4.8 million in expenses for the Deposit Guarantee Scheme of the National Association of German Cooperative Banks (BVR; 2015: EUR4.6 million in expenses for the BVR Deposit Guarantee Scheme) needed to be deducted from this figure already at the beginning of the year.

Consolidated net income/loss before taxes decreased from EUR92.2 million to EUR-27.3 million, whilst consolidated net income/loss (after taxes) amounted to EUR-23.6 million (previous year: EUR83.7 million).

DVB’s total assets decreased to EUR26.0 billion as at 30 September 2016, down 2.3% from the 2015 year-end (31 December 2015: EUR26.6 billion).

DVB’s nominal volume of customer lending (the aggregate of loans and advances to customers, guarantees and indemnities, irrevocable loan commitments, and derivatives) declined by 4.3% to EUR24.2 billion. In US dollar terms, it was down slightly, by 1.5%, to US$27.1 billion.

The two main drivers mentioned at the beginning (increased allowance for credit losses and a non-recurring effect in the result from investment securities) also affected the key financial indicators in the third quarter of 2016. These developed as follows:

Return on equity (before taxes) stood at -4.5% (previous year: 5.9%). The cost/income ratio was up by 1.5 percentage points, to 56.1% (previous year: 54.6%). Risk-adjusted Economic Value Added, which also includes operating net income from investment securities, amounted to EUR-122.5 million (previous year:
EUR-16.0 million).

DVB discloses capital ratios determined in accordance with the Basel III framework (Advanced Approach). On this basis, DVB’s common equity tier 1 ratio as at 30 September 2016 was 12.1%
(31 December 2015: 16.3%), whilst the total capital ratio amounted to 17.5% (31 December 2015: 22.4%).

Source: DVB Bank SE

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