Aareal banks on North America for new lending growth

The German bank recorded €4.2bn of new real estate lending in the first half of 2018.

The North American market has proved critical to German bank Aareal as it increased its structured property lending volumes by 10.5 percent to €4.2 billion in the first half of this year.

More than half of Aareal’s new lending in H1 2018 was generated in North America, where the share of new business rose to 53.4 percent, compared with 44.8 percent over the first half of 2017. Expansion in North America has been a priority for several German banks as they aim to lend more in markets which generate higher margins than Germany.

For this year, Aareal is targeting overall new lending between €7 billion and €8 billion, with a “continued focus on the high-margin US market”, it said.

Aareal highlighted a “highly competitive” and “uncertain” business environment for real estate financing, with margins under pressure in Europe and the US in the first half of 2018. Margins in the US, however, remained higher than in Europe during the period, the bank said. The average gross margin for newly originated loans in Q2 stood at 171 basis points, down from 220bps in Q1 2018.

“Intense competition in commercial property financing is […] likely to persist in many markets during the current year and in this context, we assume that lenders will be willing to lower their margins,” the bank noted in its latest financial report.

Aareal posted an operating profit of €62 million for Q2, which represents a 43.1 percent decrease year-on-year. The operating profit for Q2 2017 had included a positive one-off effect of €50 million arising from the reversal of provisions at a subsidiary, the bank noted.

Consolidated operating profit for H1 2018 totalled €129 million, down from €180 million year-on-year. Aareal full-year profit is still expected to be in a range between €260 million and €300 million, the bank said.