DVB Bank SE: DVB Group publishes its half-yearly financial report for 2014

Wolfgang F. Driese, CEO and Chairman of the Board of Managing Directors of DVB Bank SE, commented on the Bank’s results for the first half of 2014 and provided an outlook on business developments during the remainder of the business year:

“The flooding of international capital markets with liquidity by central banks – which DVB considers an unhealthy development – significantly burdened the Bank’s results, in two ways: firstly, there was a marked increase in competition between banks and other providers of capital in transport finance. Secondly, the liquidity glut led clients to repay loans early, to a significant and unexpected extent. It was not possible to fully replace these repayments by additional new business, or only with a time lag. Furthermore, the repayments further increased the Bank’s already high liquidity reserves, thus additionally burdening net interest income.

The risk situation appears to be stabilising further. As a result, net allowance for credit losses as at 30 June 2014 decreased slightly. Nonetheless, we envisage allowance for credit losses for the full year 2014 to be in line with the level of the two previous years, as planned.

As in the previous years, we envisage profit contributions to increase during the second half of the year, including Investment Management income, which is hard to project. The manifold regulatory requirements will continue to impact DVB’s cost structure, and will continue to burden our employees. As a result, it cannot be ruled out that DVB’s results will fall short of the previous year.”

The individual items of the half-yearly financial statements developed as follows:

At EUR105.0 million,  net interest income decreased by 9.6% year-on-year (H1 2013: EUR116.2 million).

Income from the lending business was down 1.6%, to EUR381.1 million (H1 2013: EUR387.3 million). DVB originated 78 new Transport Finance transactions in the period, with an aggregate volume of EUR2.2 billion (H1 2013: 71 new transactions with a total volume of EUR1.8 billion). Interest income from finance leases totalled EUR8.2 million (H1 2013: EUR12.7 million), whilst current income from operating leases decreased 40.1%, to EUR41.1 million (H1 2013: EUR68.6 million). Given the reasons set out above, total interest income thus declined by 7.9%, from EUR471.9 million to EUR434.7 million.

Interest expenses also fell, by 7.3%, to EUR329.7 million (H1 2013: EUR355.7 million), given the massive additional liquidity supply on the capital markets and the resulting lower funding costs. However, this effect did not offset the decline in interest income.

Net allowance for credit losses decreased slightly, by EUR0.5 million to
EUR-27.9 million in the first half of 2014 (H1 2013: EUR-28.4 million). Specifically, new allowances recognised for credit losses amounted to EUR49.1 million (of which EUR32.8 million was accounted for by Shipping Finance), whilst EUR25.2 million was reversed (Shipping Finance: EUR16.7 million). Accordingly,  net interest income after allowance for credit losses declined by 12.2%, from EUR87.8 million to EUR77.1 million.

Net fee and commission income, which primarily includes fees and commissions from new Transport Finance business, from Investment Management as well as asset management and advisory fees, was down 8.4% year-on-year, to EUR51.0 million (H1 2013: EUR55.7 million).

Net other operating income/expenses declined from EUR6.5 million to EUR2.3 million. The previous year’s item included a non-recurring effect of EUR3.8 million in income from the deconsolidation of equity investments.

General administrative expenses rose by 6.4%, to EUR91.7 million. Due to the increasing regulatory requirements, which DVB has to comply with to the same extent as large financial institutions, the Bank hired numerous new staff members to reinforce its service teams. Hence, together with its LogPay Financial Services subsidiary, DVB employed a total of 575 staff (in active employment) as at 30 June 2014, an increase of 19 compared to the end of the first half of 2013 (556 employees). Accordingly, staff expenses increased by 2.2%, to EUR54.8 million. Non-staff expenses (including amortisation, depreciation and impairment) also rose, by 13.2%, to EUR36.9 million.

Compared to the same period of the previous year, the net result from financial instruments in accordance with IAS 39 (comprising the trading result, the hedge result, the result from the application of the fair value option, the result from derivatives entered into without intention to trade, and the result from investment securities) was almost stable, at EUR2.4 million (H1 2013: EUR3.1 million).

Consolidated net income before taxes reduced by 37.7%, to EUR41.4 million (H1 2013: EUR66.4 million).Consolidated net income after taxes was down 45.3%, to EUR31.7 million (H1 2013: EUR57.9 million).

DVB reported a marginal change in total assets, by 0.9% to EUR23.2 billion as at the reporting date of 30 June 2014 (31 Dec 2013: EUR23.4 billion). The nominal volume of customer lending (the aggregate of loans and advances to customers, guarantees and indemnities, irrevocable loan commitments, and derivatives) was down 2.4%, to EUR20.3 billion. In US dollar terms, customer lending was down 3.1%, to USD27.7 billion.

DVB’s key financial indicators developed as follows:

Return on equity before taxes was 6.5% – down 4.5 percentage points (H1 2013: 11.0%). The cost/income ratio rose by 9.4 percentage points, to 57.0% (H1 2013: 47.6%).

DVB has calculated its capital ratios in accordance with the Basel III framework since the beginning of 2014. As at 30 June 2014 both the tier 1 ratio (19.4%) and the total capital ratio (21.1%) were at a high level.

You can find a video commentary on the six-month results by Wolfgang F. Driese, CEO and Chairman of the Board of Managing Directors of DVB Bank SE, on our website: www.dvbbank.com.
About DVB Bank SE:
DVB Bank SE, headquartered in Frankfurt/Main, Germany, is the leading specialist in the international transport finance business. The Bank offers integrated financing solutions and advisory services in respect of Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance. DVB is present at all key international financial centres and transport hubs: at its Frankfurt/Main head office, as well as various European locations (Amsterdam, Athens, Bergen, Hamburg, London, Oslo and Zurich), plus offices in the Americas (New York City and Curaçao) and in Asia (Singapore and Tokyo). DVB Bank SE is listed at the Frankfurt Stock Exchange (ISIN: DE0008045501). Further information is available on www.dvbbank.com.