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Introduction & Market Context
Aareal Bank (ETR:ARLG) AG reported a strong performance for the first half of 2025, with adjusted operating profit increasing by 21% year-over-year to €223 million, despite facing headwinds from a lower interest rate environment. The results were presented on August 7, 2025, by CEO Dr. Christian Ricken and CFO Andy Halford, building on the positive momentum seen in Q1 when the bank reported a 15% profit increase.
The bank’s performance demonstrates resilience in navigating the challenging market conditions, with the European short-term interest rate (ESTR) dropping from 3.9% in H1 2024 to 2.4% in H1 2025. Despite this 1.5 percentage point decline, Aareal Bank maintained strong profitability through disciplined cost management and reduced loan impairments.
Quarterly Performance Highlights
Aareal Bank’s H1 2025 results showed significant improvement across key metrics, with adjusted operating profit rising from €185 million in H1 2024 to €223 million in H1 2025. The bank’s adjusted return on equity increased from 8.0% to 9.1%, reflecting enhanced profitability despite market challenges.
As shown in the following comprehensive profit and loss statement, the bank achieved these results through a combination of controlled expenses and reduced loan impairments, which more than offset the decline in net interest income:
Net interest income decreased by 11% year-over-year to €473 million, primarily due to the lower interest rate environment. The following chart illustrates the factors contributing to this decline, including the impact of foreign exchange movements and the lower interest rate environment:
A key driver of improved profitability was the significant reduction in loan impairment charges, which decreased by 34% from €176 million in H1 2024 to €116 million in H1 2025. Simultaneously, administrative expenses were reduced by 8% to €162 million, demonstrating effective cost discipline. The following chart shows these positive developments:
Detailed Financial Analysis
Aareal Bank’s structured property financing segment showed resilience despite the challenging interest rate environment. While net interest income in this segment declined by 11% to €353 million, the gross loan margin remained stable, indicating the bank’s ability to maintain pricing discipline in a competitive market.
The bank’s new business activity remained strong, with a diversified approach across property types and regions. As illustrated in the following breakdown, the bank maintained a balanced portfolio with logistics at 16%, office at 21%, retail at 22%, and hotel at 36% of new business:
The real estate financing portfolio reached €32.4 billion, showing growth from €30.0 billion in December 2021 when adjusted for foreign exchange effects. The portfolio remains highly diversified by both region and property type, with a green loan volume of €8.5 billion, highlighting the bank’s commitment to sustainable financing:
Non-performing loans remained stable, with a coverage ratio (including FVPL) of 28%. The following chart shows the development and composition of the NPL portfolio:
The Banking & Digital Solutions division showed strong deposit volume growth, reaching €14.0 billion in Q2 2025. This growth demonstrates the bank’s ability to maintain and expand its client relationships, with deposits coming from approximately 4,000 clients managing more than 9 million housing units:
Strategic Initiatives
Aareal Bank continues to implement its "Aareal AMBITION" strategy, which focuses on four main pillars: strengthening the core business, expanding beyond traditional offerings, enhancing efficiency, and maintaining discipline in risk management and capital allocation. The strategy aims to deliver focused growth in structured property financing while increasing wallet share in banking and digital solutions.
The bank reported that the implementation of this strategy is on track, with key milestones already achieved in H1 2025. These include the expansion of the green loan portfolio, growth in deposit volumes, and enhanced operational efficiency through cost reduction initiatives.
Aareal Bank maintains a strong funding and liquidity position, with a Net Stable Funding Ratio (NSFR) of 121% and a Liquidity Coverage Ratio (LCR) of 262%. The following chart illustrates the bank’s diversified funding structure:
The bank’s treasury portfolio stands at €9.2 billion as of June 2025, with approximately 67% allocated to public sector debtors and 33% to covered bonds and financials. This conservative approach helps maintain stability in the bank’s liquidity management:
Capital ratios remain robust, with the CET1 ratio increasing to 15.5% from 15.2% at the end of 2024, primarily due to foreign exchange-driven risk-weighted asset reduction. This provides a significant buffer above regulatory requirements:
Forward-Looking Statements
Aareal Bank has reconfirmed its full-year outlook for 2025, targeting an operating profit of €375-425 million and a return on equity of 7-8%. The bank expects its real estate financing portfolio to reach €34-35 billion by year-end, with new business volumes of €9-10 billion.
The following table summarizes the bank’s outlook for 2025 compared to 2024 actual results:
Looking beyond 2025, Aareal Bank has set ambitious targets as part of its "Aareal AMBITION" strategy. These include growing the on-balance CRE loan book to approximately €37 billion, maintaining an NPE ratio below 3%, reducing the cost-income ratio to less than 30%, and achieving a return on equity of at least 13%.
Despite the challenging interest rate environment, Aareal Bank’s H1 2025 results demonstrate its ability to execute on its strategic priorities while maintaining strong profitability and a robust balance sheet. The bank’s diversified business model, disciplined cost management, and focus on sustainable growth position it well to navigate market uncertainties and deliver on its long-term objectives.
Full presentation:
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