Earnings call transcript: Aurel Bank’s Q2 2025 profit rises, strategic plans unveiled

Aurel Bank reported a 21% increase in adjusted operating profit for the first half of 2025 compared to the same period in 2024. Despite a decline in net interest income, the bank’s strategic initiatives and cost-cutting measures contributed to the positive financial performance. The bank’s stock remained stable, reflecting investor confidence in its strategic direction.

Key Takeaways

• Adjusted operating profit rose by 21% year-over-year.
• Net interest income fell by 11% to €473 million.
• A new three-year strategic growth plan, "Arial Ambition," was launched.
• The bank is expanding into the Dutch market and developing new financial software.

Company Performance

Aurel Bank demonstrated resilience in Q2 2025, achieving a 21% increase in adjusted operating profit compared to the first half of 2024. This growth was driven by strategic cost reductions and a focus on premium assets. The company’s return on equity improved to 9.1% from 8% the previous year, highlighting its efficient capital use. Despite a challenging interest rate environment, the bank maintained a strong capital position with a CET1 ratio of 15.5%.

Financial Highlights

• Adjusted operating profit: Up 21% year-over-year
• Net interest income: €473 million, down 11% year-over-year
• Loan impairment charges: Decreased by 34% to €116 million
• Administrative expenses: Reduced by 8% to €162 million
• Cost-income ratio: At 32%, indicating strong cost management

Outlook & Guidance

Looking ahead, Aurel Bank has set ambitious targets for 2025, including a credit portfolio of €34-35 billion and new business of €9-10 billion. The bank aims to grow its portfolio to €37 billion by 2027, focusing on data centers and alternative living investments. Additionally, the bank plans to increase its presence in the Asia Pacific market, signaling a strategic pivot towards growth regions.

Executive Commentary

CEO Christian Ricken emphasized the bank’s strategic focus, stating, "We are continuing to grow the structured Property Finance segment’s business both on and off balance sheet." He also reassured stakeholders, saying, "Our first half results are fully in line with expectations," and highlighted the bank’s robust business model: "This bank is a very strong bank with a functioning business model."

Risks and Challenges

• Interest rate volatility may impact net interest income.
• Expansion into new markets, such as the Dutch market, poses integration challenges.
• Economic uncertainties in major metropolitan areas could affect asset valuations.
• Reducing exposure in North America may limit growth opportunities in that region.

Q&A

During the earnings call, analysts questioned the bank’s loan growth and portfolio composition. CEO Ricken confirmed plans to diversify the portfolio, emphasizing geographic and asset class diversification. He also addressed speculation about ownership changes, maintaining a focus on strategic growth initiatives.

Full transcript - Aareal Bank AG (ARLN) Q2 2025:

Jurgen Junginger, Moderator/Host: Good morning, everybody. I’m pleased to welcome you to our today’s conference call. Today’s agenda will cover our results for the 2025 together with the outlook for the full year. I’m joined by our CEO, Doctor. Christian Ricken and our CFO, Andy Halfort.

They will take you through your presentation, which will be followed by a question and answer session. Now I’m pleased to hand over to Christian. Christian, please.

Christian Ricken, CEO, Aurel Bank: Yes. Many thanks, Jurgen. Good morning, everyone, and thank you for attending today’s call. I’m very pleased to present our results for the first half of twenty twenty five. So a good start to the year, which we reported for the first quarter, has continued.

Our first half adjusted operating profit is up 21% on the 2024. Therefore, we are confirming the outlook for 2025. Just a note on the environment, while economic and geopolitical uncertainty has led to market volatility, we have not experienced any directly discernible impact. We will, of course, remain vigilant and maintain our conservative approach to risk. Turning back to our results.

Net interest income is in line with expectations, reflecting the reduction in market interest rates, while loan impairment charges are markedly down on the last year’s first half. In addition, admin expenses are down 8%, benefiting from the ongoing tight controls that we have put in into place. In the Structured Property Financing segment, we recorded good margins and conservative loan to value ratios on newly acquired business. Overall, we achieved €4,700,000,000 of new business in the first half of the year, which is substantially ahead of the same period in 2024. Our capital and liquidity ratios are very robust, and the 2025 funding plan has largely been executed already now.

We also strengthened housing industry deposits, which reached an average of €14,000,000,000 in the second quarter. One of the aims of the Ariel ambition strategy, which we launched earlier this year, is to increase return on equity. In the 2025, we increased the return ratio to 9.1%, which compares to 8% in the first half of last year. This is just one aspect of our Ariel ambition strategy. I will say more about the milestones we have already achieved and the progress we have made on this strategic initiative later in this presentation.

I will now hand it over to Andy, who will provide further details on twenty twenty five’s first half figures. Andy, over to you.

Andy Halfort, CFO, Aurel Bank: Thank you, Christian, and good morning, everybody. So let me start on Slide five. As Christian has said, Aurel Bank has continued its good progress through the 2025, whilst net interest income is down 11% to €473,000,000 This is as expected. I’ll say a bit more on net interest income when we turn to the next slide. Loan impairment charges are down 34% to €116,000,000 This is a significant decrease when compared to twenty twenty four’s first half and reflects the work we have done and continue to do in carefully managing the loan portfolio.

Administrative expenses are being tightly controlled and excluding nonrecurring items are down by 8% to €162,000,000 The other components line includes €20,000,000 positive one off, which comes from the successful restructuring of a former legacy non performing loan. Overall, adjusted operating profit of €223,000,000 is therefore up by 21% over the first half of last year. The effective tax rate for the first half was 25%. AT1 costs are up by €7,000,000 compared to the 2024. This is because of our new AT1 issue overlapping with the previous AT1 for about three months.

Taken together, as Christian has noted, return on equity rose to 9.1% compared to 8% in the first half of last year. And our robust CET1 ratio fully phased increased to 15.5% at the June from 15.2% at the end of last year. Now moving on to Slide six, let’s take a look at the key profit and loss account elements. Net interest income, as I said, is down 11. This is in line with expectations and reflects a near halving in most European interest rates since the 2024.

There are two other important contributing factors, namely the interest effects of proactively strengthening our Tier two and senior non preferred funding positions over the last twelve months and foreign exchange rates, with the euro strengthening against other currencies, notably the dollar, in the second quarter. We expect net interest income to continue at around the current quarterly run rate for the rest of the year. In the second chart on this slide, we have shown the stepped effects on the net interest income of the main factors driving change between this year’s first half and the comparable period in 2024. Loan book growth adjusted for FX added around €8,000,000 whilst the effect of lower interest rates in our banking and digital solutions segment reduced net income by €15,000,000 Returns on treasury assets declined as a consequence of lower market interest rates and led to a reduction of €33,000,000 whilst the strengthening of our subordinated funding, which I’ve just mentioned explains a further €11,000,000 reduction. Turning now to Slide seven and administrative expenses.

They continue to be very tightly controlled, and the efficiency measures that we have put in place are beginning to lead to reductions in costs. Administrative expenses are down 8%, excluding £15,000,000 of one off charges. Our costincome ratio for the 2025 was 32%. Let’s now turn to risk provisioning. The loan impairment charge is down 34% to €116,000,000 Provisions on The U.

S. Office portfolio, which only represent about 10% of our total portfolio and have actually been reduced by nearly $1,000,000,000 in the last twelve months, continue to be the largest part of the P and L charge, representing around 75% The impairment charges on the remaining 90% of the portfolio are running significantly below long term averages. Management overlay stood at €17,000,000 at the June, following incorporation of €40,000,000 of the previous overlays into the underlying provision models. And in addition, euros 20,000,000 of individual exposures have been allocated directly to Stage three.

The remaining management overlay has been retained to reflect continuation of uncertainties in The U. S. Office market. I’d now like to hand back to Christian, who will talk about business developments in more detail.

Christian Ricken, CEO, Aurel Bank: Yes. Thank you, Andy. First, I would like to expand further on the effect of interest rates in the Structured Property Financing segment. The gross margin contribution from commercial real estate portfolio has remained stable. However, the increase in subordinated funding volumes to strengthen our balance sheet and the declining returns on our treasury assets led to the decrease in the segment’s net interest income, which was down by 11% compared to the first half of last year.

Now let’s turn to new business. We achieved a strong €4,700,000,000 of new business in the 2025. Looking at the geographical distribution of the first half’s new business, 81 was in Europe, 17% in North America and 2% in the Asia Pacific region. As planned, we reduced activity in North America, concentrating on premium assets and long standing trusted partners. We focused on other geographies and were particularly active in the South Of Europe in the first half of this year.

There were completed four large financings in the retail and logistics sectors. Our strategy on asset classes has also evolved. Total finance continues to be our largest area of new business. However, we are currently taking a more selective approach to new office financings while moving to introduce data centers, in line with our Arial ambition strategy. The average loan to value ratio for the first half of twenty twenty five’s newly acquired business was a conservative 55%, which provides a comfortable risk buffer.

Margins were also good, averaging two fifty one basis points. These figures show that we are actively identifying attractive market opportunities. Sustainability has been and continues to be an integral part of lending decisions. In the 2025, we again supported the green transformation of of commercial properties with €1,100,000,000 of green loans included in our new business numbers. Let’s now turn to the next slide, which shows our current portfolio.

The portfolio totaled €32,400,000,000 at the June, which is down when expressed in euros. However, a €1,200,000,000 reduction more than the net decrease is explained by foreign exchange rate movements. As you can see from the two pie charts at the bottom of the slide, we are still broadly diversified by property region by property type and region. We continue to have a clear focus on properties in the major metropolitan areas. We are not financing new construction, have exposure of only around 8% in Germany and no exposure at all to Russia, China or The Middle East.

Driven by new business in the first half and an increase in properties now meeting the criteria in our green finance framework, green loans stood at €8,500,000,000 at the June. The next slide tracks two key performance indicators of our performing portfolio, loan to value and yield on debt. Our conservative approach is reflected in these indicators, which remain at healthy levels. The average loan to value ratio for our overall performing portfolio stands at a very respectable 56%. At 62%, the loan to value ratio for the office asset class has improved.

I would also like to highlight the development of yield on debt, I. E, the ratio of a property’s net income to the amount of the loan. This is a key indicator of gauging a property’s profitability relative to the financing structure. Yield on debt for our entire performing portfolio is now at 9.9%, up from 9.6% at the 2024 and is now at our highest level for many years. Hotels, shopping centers and logistics properties have particularly good yield on debt ratios.

While the ratio for offices is currently a little lower, it has improved markedly over the last half year. Let’s now turn to nonperforming loans. Nonperforming loans are stable at around €1,400,000,000 compared to the balance at the end of last year. The coverage ratio also remains stable at 28%. We are continuing very active management of nonperforming loans.

The U. S. Office market remains challenging and continues to represent around 80%, eight-zero percent, of total nonperforming loans. Other asset classes and geographies are operating normally. The nonperforming exposure ratio according to the EBAs methodology stands at 3.3%.

Let’s now turn to our Banking and Digital Solutions segment, where business with clients from the housing and energy industries has been very encouraging. First Financial Software, our joint venture with Aireon, is also successfully attracting new clients. Net interest income is down 11%, driven mainly by lower market interest rates. We expect net interest income to be stable around current levels for the remainder of the year. At €13,700,000,000 the average volume of deposits from housing industry clients remained at a high level during the first half of the year.

Volume strengthened in the second quarter, and the six month average reflects the first quarter at €13,400,000,000 and the second quarter at €14,000,000,000 So there is a clear upward trend. Rental deposits and maintenance reserves have increased yet again, confirming two particularly granular and sticky components of the deposit structure. They come from around 4,000 clients managing more than 9,000,000 housing units. Now let me hand over to Andy for an update on our funding, liquidity and capital positions.

Andy Halfort, CFO, Aurel Bank: Thanks, Christian. So on to Slide 16. This shows our broadly diversified funding mix, solid liquidity ratios and capital markets activity. Following a very active first half funding program, liability terms have been successfully extended. Deposits now total around €18,000,000,000 representing around 44% of our total funding volume.

The largest part comes from the housing industry and an additional €3,300,000,000 is from retail deposits via platforms like Raisin. These retail deposits have an initial term of at least two years. Our liquidity ratios are solid with a net stable funding ratio at 121% at the June and average liquidity cover ratio at 262% for the second quarter. Our full year funding program was largely executed during the first half of the year. We increased our AT1 capital by approximately €100,000,000 by replacing the outstanding €300,000,000 issue with a new issue of $425,000,000 And we issued an additional €100,000,000 of Tier two capital.

In addition, we placed bonds in Fan Brief equivalent to around €1,600,000,000 in total. This included both euro and Swedish krona issues. That was Aurel’s first Swedish currency issue since 02/2006. During the second half of this year, we will consider prefunding the future plans depending on market opportunities. Next, on to our treasury portfolio on Slide 17.

Treasury portfolio stood at €9,200,000,000 at the June ’25, up from €8,200,000,000 at the 2024. In terms of asset classes, the portfolio comprises public sector borrowers, covered bonds and a very small portion of bank bonds. It therefore has a strong liquidity profile. High credit quality requirements are reflected in the rating breakdown. 100% of the portfolio has an investment grade rating with 89% having a rating of AA or higher.

Asset swap purchases ensure there is low interest rate risk exposure. The portfolio is almost exclusively in euros and has a well balanced maturity profile. Turning now to capital on Slide 18. First of all, I’d like to point out that we have moved from focusing on phased in numbers in the charts on this slide to fully phased Basel IV figures even though technically they don’t apply until 02/1930. So please don’t wonder about our ratios having come down compared to the equivalent slide in our first quarter results presentation.

Now looking at our ratios, they continue to be strong. Our CET1 ratio was up at the June and stood at 15.5% on the fully phased basis. The increase was mainly driven by a decrease in risk weighted assets caused by foreign exchange rate movements. Both the Tier one and total capital ratios were further supported by additions to AT1 and Tier two capital during the first half of this year. As I just mentioned, our capital ratios are significantly above SREP requirements, and our leverage ratio of 7.1% at the June is also well above regulatory requirements.

The CET1 ratio on a Basel IV phase in basis reached 21.8%. The results of the most recent ECB stress test were published last Friday. To sum it up, the twenty twenty five stress test results demonstrate the strength of our balance sheet. This year, the adverse scenario puts greater emphasis on tighter financing conditions along with disorderly adjustments to real estate prices. Assuming materialization of geopolitical risks leads to commodity price increases originating in energy price hikes.

The scenario also includes a moderate rise in short term risk free rates and a rise in sovereign credit spreads. Our stressed CET1 fully phased ratio is within the 11% to 14% range and in line with the EBAECB SSM averages. CET1 fully phased depletion stands at the lower end of the bucket two, which is 300 to five ninety nine basis points and thus is lower than the EVA ECB average. Our stress leverage ratio is above 5%. Now I’ll hand back to Christian for an update on our aerial ambition strategy and the outlook for the rest of the year.

Christian Ricken, CEO, Aurel Bank: Thank you very much, Andy. Earlier this year, we introduced a three year growth plan called Arial Ambition. Here’s a very brief recap, and then I will provide an update on progress. The plan has four strategic targets: first, to strengthen our core business second, to expand our activities third, to enhance efficiency and fourth, to maintain a disciplined approach. We are applying these targets across the group.

This means that we are continuing to grow the structured Property Finance segment’s business both on and off balance sheet. In Banking and Digital Services, we are targeting growth from existing housing market clients and by moving further into adjacent markets. We’re optimizing the scalability of our infrastructure. And on the risk capital and funding side, we are maintaining tight control over our capital and liquidity ratios. Now here’s an update on our progress.

Importantly, implementation is on track, and we are already achieving key milestones. In line with plan in the Structured Property Financing segment, we have added data centers as an asset class with the first financing of €160,000,000 in July. We have continued to achieve good good new news business margins and have revised our strategy in The U. S. In the Banking and Digital Solutions segment, housing industry deposits increased to an average of €14,000,000,000 in the second quarter.

We also began our international expansion plans with the entry into the Dutch market being underway. Next, in the context of risk funding and capital, we restructured a former legacy non portfolio loan. And as Andy mentioned earlier, we achieved a €20,000,000 gain from this transaction. Our capital ratios have all strengthened with new AT1 and Tier two issues. Further initiatives are ongoing to optimize our liquidity profiles and risk weighted assets.

There has also been progress on our infrastructure plans. A new CEO division COO division has been created. The planned headcount reduction is on track, and costs are being reduced. As you’ve seen, we have reported an 8% reduction in admin expenses for the first half of this year. Now let us turn to the 2025 outlook.

Our first half results are fully in line with expectations, and therefore, we are confirming the 2025 outlook. We certainly recognize that recently heightened uncertainties generating increased market volatility may have implications, but so far, we have felt no discernible impact. So let me summarize our outlook in this. For the financing segment, we aim to expand our credit portfolio to between €34,000,000,000 and €35,000,000,000 excluding foreign exchange movements. We are targeting between 9,000,000,000 and €10,000,000,000 of new business.

In the Banking and Digital Solutions segment, our conservative estimate of deposits continues to be between 13,000,000,000 and €14,000,000,000 All in all, we are targeting an adjusted operating profit of between $375,000,000 to €425,000,000 for 2025, excluding expected one off charges of between 20,000,000 and €25,000,000 I would now like to thank you all very much for your attention, and Andy and I are very happy to answer any questions you may have.

Conference Operator: Anyone who wishes to ask a question may press star and then one on the telephone. You’ll hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners are requested to disable loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time.

The first question coming from the line of Christian Laukos from CQS. Please go ahead.

Christian Laukos, Analyst, CQS: Yes. Good morning. Thank you for taking the questions. Just I just wanted to get a bit more detail on future loan growth and where you see that going. I see that the data centers and you put out a press release about a new data center financing.

Is that going to be a large proportion? And just basically geographically, where are you focused? Because you said Southern Europe for the last half year. Is are we going to see any sort of changes in the weighting of the portfolio? And is the portfolio going to grow overall?

Thank you.

Christian Ricken, CEO, Aurel Bank: Yes. So the last question, our portfolio is or should grow further. So that’s part of our Arial ambition 2027. So that from the current levels, we are planning to grow up to €37,000,000,000 over the next couple of years. So that is part of the plan.

And in terms of portfolio composition, I think you have rightly said that data center will become a part of our diversified portfolio. We may deemphasize office, especially in The U. S. For the time being. We are growing in U.

S. Classes, not only data center, but alternative living and others. So there will be a constant rebalancing according to margin development, according to opportunities. Geographically, talking about data centers, I think in Europe, also Germany will play an important part. It’s about France, U.

K, Sweden, Netherlands. And geographically, I would also like to emphasize that we have a growing interest in Asia Pacific and are currently exploring opportunities there because that’s the fastest growing area in the world and offering also very good margins. So that’s also part of our geographical diversification strategy. Thank you.

Conference Operator: There are no more questions at this time. I would now like to turn the conference back over to Jurgen Junginger for any closing remarks. I’ll wait. We have a last minute. Okay.

Now he’s gone. Yes. Hand over to Mr. Jurgen Junninger, please.

Jurgen Junginger, Moderator/Host: Thank you, and thank you all for joining our conference call and listening in.

Conference Operator: Sorry for the interruption. We have another question. Montyk Robert from Old Spring Global Investments. Please go ahead.

Robert Montyk, Analyst, Old Spring Global Investments: Yes. Thanks so much for the conference call. Could you give us any shedding light on the speculation about your future ownership?

Christian Ricken, CEO, Aurel Bank: I can tell you two things. It’s Christian Brigham speaking, the CEO. I can tell you two things. One is that we continue with not commenting on market rumors. Number two is this bank is a very strong bank with a functioning business model, with a sound strategy, with very highly motivated and passionate staff.

So I think we are well equipped to execute on our strategy, and we are not being distracted from rumors.

Conference Operator: There are no more questions at this time. I would now like to turn the conference back over to Jurgen Luniga for any closing remarks.

Jurgen Junginger, Moderator/Host: Okay. And again, thank you. And if you have further questions, so as always, IR team is happy to take our follow-up calls and answer further questions. Have a good day, and thank you again for listening.

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