The operating profit, excluding exceptional items, decreased from EUR 18 million in the first half-year of 2018 to EUR 9 million in the first half-year of 2019. The lower operating profit is due to increased operating expenses (EUR 10 million), lower fair value result (EUR 3 million) and a higher addition to the loan loss provision (EUR 2 million) and is partly compensated by higher interest margin (EUR 5 million) and higher fee income (EUR 1 million).
The interest margin in 2019 increased by EUR 5 million compared to the same period 2018, mainly as a result of lower funding costs. Furthermore, the 2018 interest margin included a negative result of prepayment of debt securities of EUR 2 million.
Compared to the same period in 2018, operating expenses increased by EUR 10 million, of which EUR 8 million is due to a policy change by Achmea B.V. with respect to cost allocation. The costs of outsourcing increased by EUR 1 million, due to increased mortgage production.
The net addition to the loan loss provision amounted to EUR 2 million of which EUR 0.7 million related to the Acier portfolio. The provision for the regular portfolio increased slightly from 8 points per the end of 2018 to 9 basis points per the end of June 2019. The number of defaults continues to be low. The addition in 2019 was mainly related to further model improvements and a lower macro-economic outlook related to the Acier portfolio, which is included in the calculation of the loan loss provision as of the application of IFRS 9.
In the first half-year of 2019 the production of new mortgages increased sharply with EUR 435 million to EUR 788 million, of which EUR 461 million for Achmea Pensioen- en Levensverzekeringen N.V. (2018 EUR 57 million). Furthermore, the production of the niche mortgage propositions, e.g. the buy-to-let mortgage and a mortgage product for self-employed persons, increased to EUR 123 million.
The regular mortgage portfolio of Achmea Bank remained relatively stable at EUR 9.6 billion (2018 EUR 9.8 billion).
As announced on 21 March 2019, Achmea and a.s.r. have agreed that Achmea Bank will acquire part of the banking operations of a.s.r. bank. These operations consist of a liability portfolio with savings of EUR 1.7 billion and approximately 125,000 customers, and an asset portfolio consisting of mortgages with a volume of EUR 1.5 billion. The acquisition of the portfolios fits with Achmea’s strategy, which is in part focused on growth in pensions and pension services, along with integrated banking products and asset management. The acquisition has been approved by the Dutch Central Bank and the advisory process with the Works Councils has been completed. Achmea and a.s.r. expect to finalise the integration of this transaction in the second half of 2019.
The savings portfolio remained stable at EUR 5.7 billion (2018 EUR 5.7 billion). In 2019 Achmea Bank redeemed EUR 0.6 billion RMBS notes and issued a conditional pass Through Covered Bond of EUR 0.5 billion. The Bank retained its sound liquidity position with liquidity ratios well above internal and external limits.
The Total Capital ratio increased to 21.4% (2018: 20.9%). The Common Equity Tier 1 (CET1) ratio increased to 21.3% as per June 2019 (20.8% at the end of 2018). The increase is mainly due to an improvement in the creditworthiness of a number of loans in the Acier portfolio. The net result 2018 of EUR 29 million is paid-out as a dividend.
Since year-end 2018 Achmea Bank has retained its Issuer Default Rating of A/Stable (Fitch). Standard and Poor’s revised the Issuer Credit Rating Outlook per 31 March 2019 from A-/ negative to A-/stable.
The market circumstances for mortgage products have improved, mainly driven by lower interest rates on capital markets resulting in higher margins on new mortgages. Modernizing the product conditions of our mortgage lines, e.g. automatic reduction of risk premiums, on the other hand will decrease slightly future interest margins. Overall we expect to be able to further improve interest margin by further decreasing funding costs and continued focus on niche propositions. We expect the number of defaults in the regular portfolio to continue to be low. Given the specific nature of the Acier portfolio, coupled with the macro-economic uncertainty, we are unable to make any predictions regarding loan impairments in the Acier portfolio and fair value effects.