BRFkredit reports doubling in pre-tax profits

BRFkredit Group’s pre-tax profit almost doubled in 2012, as a result of increased lending activities, lower costs, and higher earnings from the issuer’s investment portfolios, according to an official at the Danish lender.

Thomas Toft Brock-Jacobsen, head of rating and IR at BRFkredit

The Danish group, which includes covered bond issuer BRFkredit and banking arm BRFkredit Bank, reported its annual results on Monday, posting an increase in pre-tax profits from DKK127m in 2011 to DKK252m (Eu33.8m) in 2012.

Thomas Toft Brock-Jacobsen, head of rating and investor relations at BRFkredit, said that behind the growth were factors such as an increase in lending activities and a small decline in operating costs.

The major contributor to the rise in profits, however, was a 63% increase in earnings from the group’s investment portfolios.

“The developments in BRFkredit’s portfolio returns were affected positively by falling interest rates, coupled with a favourable trend in the spread between euro-zone interest rates and interest rates in Danish kroner,” said Toft Brock-Jacobsen.

The positive performance of the issuer was only marginally affected by an increase in loan loss provisions, which were raised by DKK34m as a result of growing losses on residential properties as a consequence of falling property prices in Denmark. Provisions for future losses were also raised on grounds of prudence, according to Toft Brock-Jacobsen.

Covered bond issuance for the coming year is difficult to forecast because it is related to BRFkredit’s lending activity in 2013, said Toft Brock-Jacobsen, but the issuer expects lending activity to increase. BRFkredit will be adding an extra refinancing date in 2013, with sales taking place in April, October and December.

In 2012, BRFkredit entered into an agreement on joint funding of loans with several banks, namely Jyske Bank, Sydbank, Arbejdernes Landsbank and Ringkjøbing Landbobank, under which BRFkredit issues covered bonds to fund mortgage loans to retail customers. Toft Brock-Jacobsen said that over a number of years BRFkredit expects to increase the issuance of bonds considerably in response to the joint funding alliances.

BRFkredit placed a Eu500m five year senior unsecured issue on 31 January that inaugurated a new Eu4bn EMTN programme. Toft Brock-Jacobsen said that further senior unsecured and senior secured issuance — the latter pursuant to Section 15e of Danish covered bond legislation, also known as junior covered bond issuance — under the EMTN programme is likely to happen within the next year.