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Aareal Bank discloses new medium-term strategy, cuts bad loans

Aareal Bank AG announced a new medium-term strategy which it said will maintain the group's fundamental strategic orientation, further develop individual business activities in a targeted manner and create value for shareholders and other investors.

Under the "Aareal Next Level" plan, the German bank will seek to leverage the flexibility it has achieved in its structured property financing division in terms of regions, asset classes, structures and exit channels, as well as expanding activities, such as in the servicing of property financings.

It intends to grow its consulting and services division, which includes the banking business and IT unit Aareon AG, over the coming years. It will look to provide more products and services in addition to deposit taking, boosting commission income, and also plans to expand into new markets.

For Aareon, the Wiesbaden-based lender said the unit will implement its program, presented in 2019, whereby it will "double results" over the medium term, mainly through an expansion of digital businesses and potential merger and acquisition activities. Separately, a person close to the bank told Reuters that Aareal Bank is open to selling Aareon in the medium term.

Meanwhile, based on preliminary figures, Aareal said it reduced its nonperforming loans volume by roughly 40%, or €800 million, compared to the middle of the year, to €1.1 billion as of Dec. 31, 2019. The soured debt reduction includes about €90 million for an Italian exposure, which Aareal Bank took on to its own books as part of a restructuring.

Aareal Bank noted that it substantially reduced its credit exposure to Italy during the fourth quarter of 2019, by a total of more than €600 million, consisting of €280 million defaulted loans and an exposure of €350 million to a single borrower. Based on preliminary figures, the lender has reduced its aggregate risk exposure to Italy during the 2019 financial year by about €1.3 billion to €2.7 billion.

The group also recognized about €15 million in additional expenses for accelerated de-risking during the fourth quarter of 2019, offset by roughly €10 million in nonrecurring income from the further adjustment of the Treasury portfolio.

Additionally, Aareal Bank confirmed its full-year 2019 target of a consolidated operating profit of approximately €240 million. On a full year basis, the lender will have absorbed about €50 million in costs for the accelerated de-risking of its portfolio.

The group will disclose further details of its developed corporate strategy, including financial targets for the medium term, when it presents its preliminary results for the 2019 financial year on Feb. 26.