- Growth of 12.9% (9M 2016: 7.7%) of the customer loan portfolio in the core segment of loans over EUR 30,000 in the first nine months of 2017
- Total customer loan portfolio grows by 5.6% (9M 2016: 0.6%) in the first nine months of 2017
- 9M 2017: result from continuing business operations of EUR 36.5 million on par with the previous year’s result (9M 2016: EUR 36.6 million)
- Q3 2017 vs Q2 2017: result from continuing business operations increased by EUR 4.4 million to EUR 15.7 million
- Efficiency gains thanks to digital offers and restructuring of branch network
- Sale of Banco ProCredit El Salvador successfully concluded in November 2017
ProCredit Holding AG & Co. KGaA (ProCredit Holding), parent company of the ProCredit banks, continued to achieve strong growth of the ProCredit group as well as remarkable efficiency gains through the optimisation of the branch network in Q3 2017.
The customer loan portfolio of the group, which has positioned itself as the “Hausbank” for small and medium-sized companies (SMEs) and focuses on South Eastern and Eastern Europe, has grown by 5.6% since the beginning of the year, a significantly higher rate than in the same period of the previous year (9M 2016 December: 0.6%). As at 30 September 2017, the total customer loan portfolio amounted to EUR 3.8 billion (31 December 2016: EUR 3.6 billion).
Double-digit growth in the group’s core segment of loans over EUR 30,000
The main driver of this growth was the very positive development in the core customer business. The ProCredit group’s strategic focus is on SMEs with good development and growth potential and whose financing needs are generally for loans ranging from EUR 30,000 to EUR 3 million. The core segment of loans with volumes above EUR 30,000 grew by 12.9% in the first nine months of 2017 to EUR 3.3 billion as at 30 September 2017 (31 December 2016: EUR 2.9 billion). This too represents a significant increase over the growth rate in the same period of the previous year (9M 2016: 7.7%). South Eastern Europe and Eastern Europe recorded core customer loan portfolio growth of 12.9% and 17.0%, respectively, in the reporting period. In the core segment of loans above EUR 30,000, notably higher portfolio growth was achieved in both regions year-on-year (South Eastern Europe 9M 2016: 7.7%; Eastern Europe 9M: 11.2%). The banks in Bulgaria, Serbia and Ukraine achieved particularly high portfolio growth levels. The clear double-digit growth achieved in the South Eastern and Eastern Europe regions in the core segment of loans with volumes of more than EUR 30,000 was primarily supported by the extremely successful implementation of the ProCredit group’s strategic focus on SMEs with good development and growth potential and was also aided by a good investment climate. The continued portfolio growth from July to September 2017 is seen as very positive, as the growth rates in the countries in which ProCredit operates are usually rather moderate in the third quarter due to seasonal factors.
The development of the ProCredit group’s total customer loan portfolio in the 2017 financial year was affected by the planned reduction of the very small portfolio of loans under EUR 30,000. Overall, this part of the portfolio shrank by EUR 169.3 million during the first nine months of the current year. It is expected that the group’s withdrawal from the segment of loans of less than EUR 30,000 will be largely completed by the end of 2017.
In South America, the strategic realignment and focus on SMEs with financing needs of above EUR 30,000 is progressing more slowly, and total withdrawal will be completed later than in South Eastern and Eastern Europe. The customer loan portfolio in South America saw a 20.6% reduction in the first three quarters of 2017 to EUR 243.7 million as at 30 September 2017 (31 December 2016: EUR 306.9 million). This decrease was mainly due to the withdrawal from loans below EUR 30,000 as well as to the depreciation of the US dollar since the beginning of the year. In domestic currency, the loan portfolio growth in the core segment of lending volumes above EUR 30,000 was positive.
As at 30 September 2017 the overwhelming majority of the customer loan portfolio consisted of business loans, reflecting the group’s strategy. On this date, 19.0% of the customer loan portfolio consisted of loans to agricultural businesses. Loans to private clients accounts for a minor share of the portfolio (9.2%). The great majority of these are mortgage loans used to purchase, renovate or improve the energy efficiency of real estate (30 September 2017: 79.0%).
The green loan portfolio, which comprises loans granted by ProCredit banks specifically for ecologically responsible projects, grew by 30.1% (9M 2016:12.2%) to EUR 428.4 million (9M 2016: EUR 295.9 million) in the first nine months of the financial year. The green loan portfolio thus accounted for a share of 11.3% of the total customer loan portfolio as at 30 September 2017 (9M 2016:8.3%).
The loan portfolio of the ProCredit group continues to be highly diversified. The ten largest exposures represented only 1.8% of the group’s total customer loan portfolio as at 30 September 2017.
Improvement of cost/income ratio in the third quarter of 2017
The cost/income ratio improved by 7.1 percentage points to 69.3% in the third quarter of 2017 from 76.4% in the second quarter of 2017. The main reason for this was efficiency gains from restructuring measures relating to the branch network. In the financial year 2017, related one-off expenses will be included in the consolidated net income of the ProCredit group. After a cost/income ratio of 75.1% for the first half of the year, this key indicator has now improved to 73.1% (9M 2016: 69.1%) over the first nine months of the year.
Borislav Kostadinov, Member of the Management Board of ProCredit General Partner AG (personally liable managing partner of ProCredit Holding AG & Co. KGaA), explains: “After the successful automation of cash transactions via our 24/7 self-service zones, we are now focusing our attention on widening the use of our range of online-banking services, which are aimed in particular at private clients who appreciate modern and innovative financial services. This is why we are restructuring our branch network and are already reaping the first fruits of these efficiency-enhancing measures in our operating business.”
In the first nine months of the financial year 2017, the ProCredit group generated consolidated result of EUR 35.8 million, slightly higher than in the same period of the previous year (9M 2016: EUR 35.5 million). At EUR 36.5 million, earnings from continuing operations for this period were at the same level as in the previous year (9M 2016: EUR 36.6 million). The consolidated net income for the first nine months of the financial year 2017 includes special effects, but these had only a negligible net effect. The previous year’s result includes extraordinary income from the merger of Visa Europe and Visa Inc.
The return on average equity (RoAE) for the first nine months of the financial year 2017 stood at 7.1% (9M 2016: 7.6 %). The focus on providing financing to SMEs with good prospects for development and growth, coupled with the withdrawal from lending to very small businesses, has led to an improvement in loan portfolio quality. As a result, loan loss provisions in the first three quarters of 2017 were lower than in the same period of the previous year. In addition, efficiency-enhancing measures have reduced operating expenses and increased non-interest income. This was offset by reduced net interest income, which was a consequence of the strategic realignment and market factors.
The Common Equity Tier 1 (CET1 fully loaded) capital ratio of 13.3% as at 30 September 2017 illustrates the very solid equity base of the ProCredit group (31 December 2016: 12.4%). This includes a positive effect from the sale of Banco ProCredit Nicaragua, which was completed in August 2017. The sale of Banco ProCredit El Salvador, also announced, was successfully concluded in November 2017. This is expected to have a further positive effect on the Common Equity Tier 1 capital ratio.
Portfolio growth for the remainder of the year likely to be stronger than originally expected
Thanks to the ongoing high momentum in the core business, the Management Board continues to expect net growth in the group’s customer loan portfolio of over 8%, in accordance with the adjusted forecast for the current financial year issued on 7 July 2017 (previous forecast: between 5% and 8%). The development in the core segment of lending volumes of more than EUR 30,000 with a portfolio growth of 12.9% over the first nine months of 2017 is in line with the forecast adjusted in July 2017, which expects this portfolio to grow by more than 10% (previously: about 10%). If the fourth quarter of the current financial year proves to be similarly strong in terms of growth as the final quarters of previous years have shown, the significant growth in the core segment of lending volumes above EUR 30,000 is expected to continue until the end of 2017.
“We live SME banking and focus on building long-term, trust-based business relationships with our clients. Our experienced teams in the individual banks know the local markets and needs of our clients very well and aim to convince SMEs that we are the right bank for them. The strong growth in our core segment of loans of over EUR 30,000, especially also in the third quarter, as well as the existing pipeline are clear signs that we have chosen the right strategic direction. Based on the growth achieved in the first nine months of the current year, we confirm the growth forecast for the financial year 2017, which was adjusted in July,” concluded Borislav Kostadinov.
The forecast for return on average equity (RoAE) is unchanged and is expected to be in a range of 7% to 9% for the financial year 2017. The projection for Common Equity Tier 1 capital (CET1 fully loaded) is also unchanged at a value of over 13%.
The ProCredit group’s quarterly report dated 30 September 2017 will be available as of today in German and English on ProCredit Holding’s website in the Investor Relations section at https://www.procredit-holding.com/investor-relations/reports-and-publications/financial-reports/.
Andrea Kaufmann, Group Communications, ProCredit Holding, Tel.: +49 69 951 437 138, e-mail: Andrea.Kaufmann@procredit-group.com
ProCredit Holding AG & Co. KGaA
ProCredit Holding AG & Co. KGaA, based in Frankfurt am Main, Germany, is the parent company of the development-oriented ProCredit group, which consists of commercial banks for small and medium enterprises (SMEs) and whose operational focus is on South-Eastern and Eastern Europe. In addition to this regional focus, the ProCredit group is also active in South America and Germany. The company’s shares are traded on the Prime Standard segment of the Frankfurt Stock Exchange. The anchor shareholders of ProCredit Holding AG & Co. KGaA include the strategic investors Zeitinger Invest and ProCredit Staff Invest (comprising the investment vehicles for ProCredit staff), the Dutch DOEN Participaties, KfW Development Bank and IFC (part of the World Bank Group). As the group’s superordinated company according to the German Banking Act, ProCredit Holding AG & Co. KGaA is supervised on a consolidated level by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) and the German Bundesbank. For additional information, visit www.procredit-holding.com.
This report contains forward-looking statements. Forward-looking statements are statements that do not describe past events; they include statements on the assumptions and expectations of ProCredit Holding as well as underlying assumptions. These statements are based on the plans, estimates and forecasts currently available to the Management of ProCredit Holding. Forward-looking statements therefore pertain solely to the date on which they are made. ProCredit Holding undertakes no obligation to update these statements in the event of new information or future events. Forward-looking statements naturally involve risks and uncertainties. A number of important factors can contribute to the fact that actual results may differ materially from forward-looking statements. These factors could include major disruptions in the Eurozone, a significant change in foreign trade or monetary policy, a worsening of the interest rate margin or pronounced exchange rate fluctuations. Should any of these factors arise, the impact could be manifested in decreased loan portfolio growth and an increase in past-due loans, and thus result in lower profitability.