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Shipping exposure no longer threat to German state bank NordLB – CEO


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Shipping exposure no longer threat to German state bank NordLB – CEO

Norddeutsche Landesbank Girozentrale's shipping portfolio is no longer a threat to the German federal state bank as its rundown is going according to plan despite the COVID-19 pandemic, CEO Thomas Bürkle said March 25.

NordLB's performance in 2020 was solid despite the impact of the pandemic with all business segments booking operating income, albeit somewhat below original expectations, Bürkle told journalists during a full-year earnings presentation.

The bank swung to a full-year consolidated profit of €25 million from a €103 million loss in 2019, thanks mainly to lower costs and an improvement in net interest income and profit from financial assets.

Legacy shipping loans, most of which nonperforming, led NordLB to the brink of collapse two years ago as its loan loss provisions skyrocketed, pushing the group into €2.35 billion loss and dragging its core capital ratio below regulatory minimums. The bank was eventually recapitalized by its owners — the states of Lower Saxony, Saxon-Anhalt and several savings bank associations — and a restructuring was launched to help it exit shipping and downsize and diversify its business model.

Shipping book rundown

Since 2018, NordLB has managed to reduce its shipping exposure by more than €8 billion thanks primarily to large nonperforming loan sales. In 2020, the bank had €2.1 billion of shipping loans on its books, €900 million of which were nonperforming.

The market volatility triggered by the pandemic was a blessing in disguise for NordLB as it helped the bank reduce its shipping portfolio at a fast pace and good price, Chief Risk Officer Christoph Dieng said at the presentation. This trend continued in the first quarter of 2021.

The bank will continue the rundown of the shipping portfolio in the next few years and aims to off-load the remaining €900 million nonperforming loans by the end of 2021, said Dieng. The near halving of the shipping portfolio helped reduce the group's nonperforming-to-total loan ratio to 1.3% in 2020, from 2% in 2019, he said.

If the €900 million remaining shipping NPLs are excluded, the 2020 NPL ratio would stand at 0.8%, Dieng noted.

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NordLB is watching its aircraft portfolio closely as the 50% to 80% drop in air traffic amid the pandemic make it the area most exposed to COVID-19, Dieng said. The aircraft portfolio accounted for €255 million of the total €426 million risk provisions made by the group in 2020.

The aircraft portfolio was reduced by some €1 billion to €3.7 billion in the course of 2020 but there are no plans to cut it further in 2021, Dieng said. It is important to note that 55% of the portfolio is backed by state guarantees and securitizations, leaving about €1.7 billion of unsecured assets in that part of the business, he said.

2024 targets

NordLB is on track to meet its 2024 restructuring goals and reduce total assets to €110 billion and costs to €638 million, Bürkle said. From a current standpoint there is no reason to believe the bank would not manage that, he said.

The planned staff reduction, which will eliminate almost half of the group's existing roles by 2024, is also on track. All measures are on a voluntary basis and are already contractually agreed, the CEO said.

The bank has had a good start to 2021 and is happy with the current level of new business volume, Bürkle said. However, given the remaining uncertainty around the length and full impact of the pandemic, it is too early to make projections for 2021, he said. Although 2021 risk provisions are expected to stay below the 2020 level, they will still be material, Dieng said.

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