Interim Report 2020
Credit volume remains at a high level in uncertain times
- Negative consequences of COVID-19 for municipalities and healthcare institutions
- Slight increase of the long-term loan portfolio
- Net profit EUR 100 million
- Solvency ratios remain at a high level
Slight increase of the long-term loan portfolio
The demand for credit, particularly from the municipalities, was higher than expected, partly due to the financial consequences of the COVID-19 pandemic. In the first four months, the volume of new long-term loans exceeded EUR 1 billion per month. However, the sale of shares of energy company Eneco by local authorities in the last two months of the first half of the year has had a negative effect on the bank's lending, as shareholders partly used these funds to reduce their own lending or to lend to other local authorities. BNG Bank's new long-term lending amounted to EUR 5.4 billion in the reporting period, a decrease of EUR 0.8 billion compared with the first half of 2019. Relative to year-end 2019, the long-term loan portfolio rose by EUR 1.2 billion to EUR 85.4 billion. The COVID-19 pandemic has had a major impact on the healthcare sector. However, because the government and health insurers have set up a safety net for the healthcare sector, the consequences for BNG Bank have so far been limited.
Good access to funding following a brief interruption
BNG Bank has raised a total of EUR 9.8 billion in long-term funding through bond issues in the first half of the year. Market conditions were initially favourable, but in the first weeks of March, the market for long-term funding was closed due to the global outbreak of the COVID-19 virus. The market then re-opened, but with higher credit and liquidity spreads. In the first half year, BNG Bank issued four benchmark loans in EUR and USD with maturities of 10, 5, 3 and 10 years respectively. BNG Bank also participates in the third 'Targeted Longer-Term Refinancing Operation' (TLTRO) of the European Central Bank.
BNG Bank does not strive for profit maximisation, but for social impact and a fair return for the shareholder governments. At EUR 225 million, BNG Bank's interest result was significantly higher than for the same period in 2019. The net profit of BNG Bank for the first half of 2020 amounts to EUR 100 million. On balance, the result on financial transactions was negatively affected by revaluations of financial instruments as a consequence of the higher credit and liquidity risk premiums. In addition, the bank had to increase the provision for expected credit losses as a result of the sharply deteriorated economic outlook. This led to impairments of EUR 27 million in the first half of the year. Compared with the underlying exposure of around EUR 145 billion, the total expected credit losses remain low, reflecting the high creditworthiness of BNG Bank's exposures.
Solvency ratios at a high level
Compared to year-end 2019, the balance sheet total increased by EUR 17.3 billion to EUR 167.0 billion, mainly as a result of the fall in long-term interest rates and the bank's decision to maintain higher liquidity buffers in this period of crisis. In the reporting period, BNG Bank's equity remained virtually unchanged at EUR 4.9 billion. BNG Bank's Common Equity Tier 1 ratio and Tier 1 ratio were 31% and 36% respectively at the end of June 2020.
BNG Bank expects to exceed this year's target for new long-term loans of EUR 10 billion as a result of the current low interest rates. Clients remain uncertain as a consequence of the far-reaching social and financial impact of the COVID-19 pandemic. BNG Bank will continue to do everything possible to support its clients. The volatility in the financial markets is expected to be higher than usual this year due to the pandemic. As a consequence, the bank does not consider it wise to make a statement on the expected results for 2020.
The Hague, 7 September 2020, 8.00 AM