This year has been an exceptionally intense year for practically all financial services around the globe due to the global pandemic, Covid. Despite the fact that, certain banks are confronting challenges, German’s DZ Bank Group is recounting an alternate story. The bank generated a profit before taxes of €557 million in the principal half of 2020, and has hitherto adapted well to the impact of the COVID-19 pandemic.
The bank’s operating performance was extremely fulfilling at most satisfying entities, and specifically, a sharp ascent in profit before taxes at the focal institution and corporate bank. The majority of the entities had the option to fundamentally build their customer base. Steadily strong demand for fund investments meant that inflows at Union Investment held steady. R+V Versicherung registered premium growth across all segments.
Profit before taxes, primarily in the first quarter, was squeezed by valuation effects, particularly in DZ HYP’s government bond portfolio and in relation to R+V Versicherung’s gains and losses on investments held by insurance companies. The capital markets’ recovery in the second quarter significantly reduced these adverse effects. The fallout from the COVID-19 pandemic required an increase in loss allowances, most notably in the maritime portfolio of DVB Bank. Overall, the risk situation remains in line with expectations.
The profit before taxes achieved in this exceptional situation has given the Bank renewed confidence that they are pursuing the right strategy. Their position as a broadly diversified financial services group has proved to be a source of stability, making a substantial contribution to the turnaround in profitability in the second quarter.
In the first six months of this year, the bank successfully continued with their growth strategy and captured additional market share in many business areas with their customers being their ‘real’, by reposing trust in DZ Bank. The central institution and corporate bank experienced particularly strong demand in its function as a lender to companies, an intermediary for capital market funding, and a market leader for payments processing.
The DZ BANK Group’s capital adequacy remained very stable with the common equity Tier 1 capital ratio standing at 14.0 percent as at June 30, 2020 (December 31, 2019: 14.4 percent). Meanwhile, the leverage ratio was 4.6 percent. DZ BANK further strengthened its hybrid capital base by successfully placing a Tier 2 bond with a volume of €1.2 billion in July 2020. Total assets rose from €559 billion at the end of 2019 to €604 billion as a result of the expansion in the volume of business.
The DZ BANK Group’s net interest income rose by 13 percent to €1.51 billion in the first half of 2020 (H1 2019: €1.33 billion). This increase is mainly attributable to the money markets business and capital markets business of the central institution and corporate bank and the success of the customer business of DZ HYP.
At €1.05 billion, net fee and commission income was above the high level of €958 million achieved in the first half of 2019 and was mainly attributable to the good business performance of Union Investment and of the central institution and corporate bank.
Gains and losses on trading activities amounted to a net gain of €539 million. The significant year-on-year rise (H1 2019: €141 million) was partly attributable to the much higher level of income in the customer business of the central institution and corporate bank.
Gains and losses on investments deteriorated from a net gain of €130 million in the prior-year period to a net loss of €15 million. This decline was predominantly due to the absence of the positive non-recurring items that had provided a boost in the prior-year period.
Other gains and losses on valuation of financial instruments amounted to a net loss of €247 million (H1 2019: net gain of €126 million), primarily owing to valuation effects in DZ HYP’s government bond portfolio.
Net income from insurance business came to €124 million (H1 2019: €761 million). The main reason for this decrease was the net loss recorded by R+V Versicherung under gains and losses on investments held by insurance companies as a result of unfavorable equity market and spread movements triggered by the COVID-19 pandemic.
Loss allowances stood at €522 million (H1 2019: €105 million). As well as the increased allowances required at DVB Bank, there was also an addition of €165 million due to an IFRS 9-related update to the macroeconomic forecasts as a result of the COVID-19 pandemic.
At €2.02 billion, administrative expenses went down slightly thanks to a reduction in general and administrative expenses as a result of strict cost management (H1 2019: €2.05 billion).
Profit before taxes amounted to €557 million.
Net profit stood at €372 million.
The cost/income ratio reached 65.1 percent.