Interim Report 2015
31 August 2015
- New long-term lending up by 9%
- More competitive lending rates for clients
- Net profit relatively high due to positive market value changes
- Increase in capital ratios
Increase in new long-term lending
The bank's market share in the core client sectors - local authorities, housing associations and healthcare institutions - remained high during the reporting period. Compared with the first half of 2014, new long-term lending rose by 9% to EUR 5.1 billion, primarily because of the increase in refinancing by local authorities. However, the large number of new government measures has led to great uncertainty. As a result, BNG Bank's core clients are reluctant to make new investments.
More competitive lending rates for clients
BNG Bank's funding costs relative to that of many other banks improved, thanks to the inclusion of the bank's bonds in the public purchase programme of the European Central Bank (ECB). BNG Bank already obtained promotional lender status in 2014, which means that its bonds are classified in the highest category of the liquid assets that banks are required to hold. During the reporting period, BNG Bank raised EUR 8.9 billion in long-term funding. The bank has translated the low funding costs into more competitive lending rates for its clients.
Net profit influenced by volatility in financial markets
Net profit was again strongly influenced by the volatility in the financial markets, caused in part by the ECB's bond purchase programme. The effects on market interest rates and exchange rates have led to positive unrealised market value changes.
Net profit was negatively affected by impairments totalling EUR 68 million, in particular due to a bond of the former Austrian bank Hypo Alpe Adria. Although this bond is guaranteed by the federal state of Carinthia, the Austrian regulator takes the view that bond holders must bear part of the costs of resolution ('bail-in'). BNG Bank is of the opinion that the federal state of Carinthia, as a guarantor, is contractually liable for losses on the bonds held by the bank. The bank has joined a group of creditors in order to secure its interests and to prepare for potential (legal) actions.
Further improvement of capital ratios
With the balance sheet total remaining virtually stable, BNG Bank's solvency improved during the reporting period. The bank's Tier 1 ratio rose to 25.2%, while the leverage ratio went up to 2.1%. Although the minimum level of the leverage ratio has not yet been determined, BNG Bank believes that the expected level of 3% by the end of 2017 will be achieved by retained earnings and a hybrid capital issuance. The issuance of hybrid capital is planned for later this year.
In recent years, the bank has increasingly focused on financing sustainable investments. Examples include investments in measures to reduce energy consumption levels in public real estate and the installation of solar panels in the social housing sector. The bank intends to give sustainability an even more prominent position in its lending operations in the coming years. This will also apply to the bank's funding activity as BNG Bank plans to issue a second Socially Responsible Investment (SRI) bond in 2015.
Staff takes Dutch banker's oath
During the reporting period, all staff members took the Dutch banker's oath, pledging to abide by the rules of conduct for the Dutch banking sector and to be subject to the banking sector disciplinary rules. They did so after participating in internal workshops on integrity.
Contribution to European Resolution Fund
From 2015, BNG Bank is required to contribute to building up the European Resolution Fund over a ten-year period. The bank has taken account of a minimum contribution of EUR 10 million in 2015. Additionally, the bank has to pay a contribution of EUR 36 million under the Dutch bank levy.
Outlook for 2015
The bank is facing a rise in operational costs, primarily as a consequence of additional reporting obligations under ECB supervision. The interest result for 2015 is expected to be lower than for 2014. In the near future, the result on financial transactions will remain sensitive to political, economic and monetary developments. In view of those persisting uncertainties, the bank does not consider it wise to make a statement regarding the expected net profit for 2015.
This is an unofficial translation of the Dutch press release 'BNG Bank Halfjaarbericht 2015'. This translation is provided for convenience only. In the event of any ambiguity, the Dutch text will prevail.