BayernLB posts earnings of EUR 1,441 million

• Net interest and net commission income rises to EUR 3.4 billion, buoyed in particular by high interest rates (FY 2022: EUR 2.6 billion)
• Strong profit before taxes due to good operating performance in all customer segments; strategic focus as a financier of progress and DKB's growth strategy bear fruit
• Good consolidated profit allows for distributions to the owners of EUR 350 million; high capital base: CET1 ratio of 19.3%
• RoE is at 12.7 percent and CIR at 46.8 percent
• Forecast for 2024: Profit before taxes of over EUR 1 billion expected

Munich - BayernLB posted a profit before taxes of EUR 1,441 million in financial year 2023 (FY 2022: EUR 1,122 million). Earnings were driven largely by high interest rates and steadfast implementation of the Fokus 2024 transformation programme, which spanned several years. Consolidated profit (after taxes) stood at EUR 1,165 million (FY 2022: EUR 1,055 million).

"2023 was a financially successful year with strong earnings for the BayernLB Group. It's gratifying that the results don't only stem from the boom caused by the high interest rates but also from the operating performance in all customer segments," commented Stephan Winkelmeier, CEO of BayernLB. "BayernLB's positioning as a streamlined specialised lender, which we completed in 2023, and the profitable growth strategy at our subsidiary DKB are bearing fruit. Since the market environment is very volatile with multiple risks, it is prudent for us to keep working resolutely to secure the Group's profitability and robust capital base. So we can continue being a stable and reliable partner for our customers," Winkelmeier continued.

Financial figures for 2023

Net interest income jumped to EUR 2,919 million (FY 2022: EUR 2,137 million). Of this amount, DKB accounted for around EUR 1.9 billion and BayernLB accounted for around EUR 1.0 billion. The figure benefited considerably from higher interest rates, especially in the deposit-taking business (incl. DKB's retail business), and from further volume growth in customer business.

Net commission income rose to EUR 473 million (FY 2022: EUR 424 million), pushed up by good credit business in the Corporates Division at BayernLB and higher income from payment services and card business at DKB.

The BayernLB Group posted a net loss from risk provisions of EUR 180 million for financial year 2023 (FY 2022: net loss of EUR 70 million). Overall, risk provisions in the credit business were marked by an increase in specific loan loss provisions and a small reduction in the post model adjustment (PMA). As at the reporting date, the proportion of the PMA in the risk provisions was EUR 337 million (FY 2022: EUR 362 million). In addition, repayments of problem loans had a significant impact on the net risk provisions. Recoveries on written down receivables produced a gain for the BayernLB Group of EUR 102 million (FY 2022: EUR 26 million). A significant proportion of this came from payments received from HETA Asset Resolution AG, Wien (EUR 78 million).

The NPL ratio, which reflects the share of non-performing loans in relation to the overall lending volume, remained low at 0.9 percent (FY 2022: 0.6 percent).

Benefiting from the altered interest rate environment, gains or losses on fair value measurement produced a gain of EUR 226 million (FY 2022: gain of EUR 67 million). The improvement in gains or losses on hedge accounting to a negative EUR 46 million (FY 2022: loss of EUR 177 million) is mainly attributable to DKB and stems from much higher net interest income from derivatives in hedge accounting. Gains or losses on financial investments was a negative EUR 71 million (FY 2022: negative EUR 11 million), with losses from the sale of selective securities responsible for the decline.

The BayernLB Group's administrative expenses stood at EUR 1,617 million (FY 2022: EUR 1,569 million), with the increase mainly due to building up additional IT expertise at DKB. BayernLB, on the contrary, reduced its administrative expenses slightly further, as it rigorously implemented its streamlining strategy. DKB accounted for EUR 802 million of the total amount (FY 2022: EUR 740 million) and BayernLB accounted for EUR 815 million (FY 2022: EUR 829 million).

Expenses for the bank levy and deposit guarantee scheme shrank to EUR 128 million (FY 2022: EUR 140 million). The mandatory contribution to the bank levy went down by EUR 33 million to EUR 70 million (at BayernLB the decrease was from EUR 61 million to EUR 35 million, while at DKB it was from EUR 42 million to EUR 35 million). This was because of the reduction in the target volume of the Single Resolution Fund (SRF). Meanwhile, the mandatory contribution for the deposit guarantee scheme went up by EUR 22 million to EUR 58 million, with DKB accounting for the full amount. BayernLB has achieved its target volume for the deposit guarantee scheme since 2021.

Other income and expenses came to EUR 59 million (FY 2022: EUR 356 million). The previous year's figure was largely boosted by the EUR 299 million in proceeds from the sale of buildings not needed for business operations.

Gains or losses on restructuring produced a loss of EUR 92 million (FY 2022: gain of EUR 108 million), of which a loss of EUR 66 million (FY 2022: gain of EUR 1.3 million) related to DKB and a loss of EUR 26 million (FY 2022: gain of EUR 104 million) to BayernLB. The key factor in the increase at DKB was measures introduced in connection with the Fit4Growth transformation and efficiency programme, with the aim of improving DKB's operating model for the long term, continuing its profitable growth trajectory and increasing the efficiency of internal processes by investing continuously in digitalisation. BayernLB's restructuring expenses were the result of selected IT transformation measures, which were launched under the Fokus 2024 transformation programme.

In financial year 2023, the BayernLB Group reported tax expenses of EUR 271 million (FY 2022: EUR 64 million).

The BayernLB Group's total assets stood at EUR 273.4 billion (31 December 2022: EUR 259.3 billion). Risk-weighted assets (RWAs) remained largely unchanged at EUR 64.5 billion (31 December 2022: EUR 65.3 billion).

BayernLB continued to enjoy a good capital base as at 31 December 2023, with the CET1 ratio a very robust 19.3 percent (FY 2022: 17.4 percent).

Return on equity (RoE) rose to 12.7 percent (FY 2022: 10.5 percent) and the cost/income ratio (CIR) improved to 46.8 percent from 56.2 percent in the year before.

Distributions to the owners

BayernLB's owners, the Free State of Bavaria and the Bavarian savings banks, should share in BayernLB's financial success. With this in mind, the Bank is distributing EUR 350 million to its owners (FY 2022: EUR 225 million).

Fokus 2024 transformation programme successfully completed

BayernLB completed its Fokus 2024 transformation programme in 2023. In the past four years, the Bank has evolved from a universal bank to a specialised lender with a clear product and customer focus. In Corporates & Markets, BayernLB focused steadfastly on sectors of the future, while also launching initiatives in clearly defined growth industries of tomorrow in other areas of the core Bank. At the same time, it cut costs and reduced complexity. BayernLB has maintained its role as the principal bank for the Free State of Bavaria and central bank for the Bavarian savings banks.

Alongside this, DKB has accelerated customer growth, increased its earnings potential and positioned the bank as a "geldverbesserer" (your money can do more) with a focus on profitable growth. The IT landscape at both BayernLB and DKB was extensively modernised, for which they invested around EUR 730 million.

However, BayernLB's transformation did not just look at bettering its financial indicators, which is reflected in higher profitability and improvements in the Group's capital situation. It also took the way the Bank's employees cooperate and work together to a new level. New teamwork models, especially in the Corporates business, were established for this purpose. The transformation encompassed extensive change measures, a cultural shift and - prompted by the workforce reduction completed in autumn 2023 - extensive knowledge transfer. BayernLB's employees helped shape the transformation by getting involved in a whole host of initiatives. Their close involvement and their great dedication, in conjunction with the high commitment at all levels, were key drivers of the transformation's success.

BayernLB's goal for the next few years will be to continue realising its current strategic vision, taking account of technological progress, market developments and the competitive environment, and to secure the Group's profitability.

Earnings in the customer-serving operating segments

Real Estate & Savings Banks/Financial Institutions

The Real Estate & Savings Banks/Financial Institutions segment's profit before taxes was EUR 242 million (FY 2022: EUR 287 million). The segment's income grew, but was more than offset by additional risk provisions in the commercial real estate business.

The Real Estate business area produced a profit before taxes of EUR 4 million (FY 2022: EUR 187 million). The business area's operating earnings remained largely unchanged at EUR 319 million (FY 2022: EUR 317 million), despite moderate new business as a result of the market situation. The drop in earnings mainly came from higher risk provisions, which with a net increase of EUR 210 million (FY 2022: net increase of EUR 36 million) take account of the situation on the commercial real estate market.

The Savings Banks & Financial Institutions business area doubled its profit before taxes year on year to EUR 154 million (FY 2022: EUR 76 million). The main driver for this was the significant net fall in risk provisions of EUR 84 million (FY 2022: fall of EUR 1 million), largely due to recoveries on written down receivables from HETA (EUR 78 million). The income side also benefited from the rise in net interest income on the back of the positive trend in market interest rates.

BayernLabo posted a profit before taxes of EUR 72 million (FY 2022: EUR 25 million). The jump in earnings resulted mainly from the rise in net interest income to EUR 101 million (FY 2022: EUR 57 million), due to the positive impact of the current interest rate environment on investments of liquidity and other factors.Profit before taxes at Real I.S. amounted to EUR 27 million (FY 2022: EUR 31 million). The main reason for the decline was the difficult situation on the real estate market, causing transaction volumes to fall.
BayernInvest broke even in its profit before taxes (FY 2022: EUR 4 million). The drop in earnings was primarily due to expenses from the measurement of equity interests and a decline in net commission income following higher expenditure on brokerage commission.

Corporates & Markets

The Corporates & Markets segment increased its profit before taxes to EUR 236 million (FY 2022: EUR 154 million), largely owing to the Bank's rigorous implementation of its streamlining strategy, which was reflected in a good business performance with earnings gains. A boost came from the market and interest rate environment.

Net interest and net commission income rose to EUR 408 million (FY 2022: EUR 379 million). Besides good new business with corporate customers, higher income from the deposit business played a key role. Gains or losses on fair value measurement were pushed up to EUR 84 million (FY 2022: EUR 41 million), mainly by positive earnings contributions from trading in carbon certificates. Risk provisions rose by EUR 1 million on a net basis (FY 2022: net rise of EUR 17 million), which was less than in the previous year, and benefited from good portfolio quality and releases of risk provisions on certain exposures.

DKB

The DKB segment's profit before taxes amounted to EUR 1,003 million, well ahead of the previous year's EUR 354 million.

The main driver of the increase was the jump in net interest income to EUR 1,937 million (FY 2022: EUR 1,310 million), buoyed by higher market interest rates and an increase in customer business. DKB's net commission income also came in higher, rising to EUR 130 million (FY 2022: EUR 80 million), due to the good performance in the card business and payment services.

The gains or losses on fair value measurement line item climbed to EUR 31 million (FY 2022: loss of EUR 44 million) as a result of good stock market performance. Gains or losses on hedge accounting came in at a loss of EUR 54 million, which was less negative than the previous year (FY 2022: loss of EUR 175 million.

Risk provisions rose by EUR 59 million net (FY 2022: rise of EUR 13 million), which was more than in the previous year, but this line item continued to benefit from a focused credit portfolio in sectors largely resistant to economic cycles.

DKB expanded its retail customer base to around 5.6 million clients (FY 2022: approximately 5.3 million), further consolidating its position as Germany's second-largest online bank and one of the country's market leaders in digital banking. To safeguard its market position for the long term, additional investments were made in 2023, for example on building up additional IT expertise, which pushed up administrative expenses to EUR 802 million (FY 2022: EUR 740 million).

Outlook

The BayernLB Group expects profit before taxes of between EUR 1,000 million and EUR 1,200 million for 2024. This forecast is still fraught with significant uncertainty due to high geopolitical risks and the inflation and interest rate situation.

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