German Pfandbrief Banks Observe Upward Trend

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Distinct yield gap between Pfandbrief and other covered bonds continue to exist. The Pfandbrief successfully defended its status as a premium product in the covered bond market in 2010. The spreads of other covered bonds widened considerably again during the course of 2010 in several EU countries, and have remained comparatively high to date.

In 2010, the German Pfandbrief banks expanded their lending business for the first time in two years. This development was driven by growth in new property finance commitments. Pfandbrief primary sales and the volume of Pfandbrief outstanding show first signs of a bottoming-out.

In 2010, Pfandbrief Bank loan commitments increased by 1.6% over the previous year to around €142.3 billion. In 2009, the loan commitments had fallen by around 35%. Growth in 2010 was due to the strong recovery in property finance commitments, which rose by 17.6% to €76.8 billion. Residential property finance experienced the strongest increase, rising 18.4% to €33.1 billion. New commitments in commercial property finance likewise increased sharply, by 16.9% to €43.8 billion. The Association of German Pfandbrief Banks (vdp) sees reasons to be cautiously optimistic about the years ahead. The vdp member banks expect Pfandbrief sales to rise slightly in 2011, from €87 billion to just under €90 billion.

“The Pfandbrief remains an anchor of stability in the capital market and the benchmark for quality in the covered bond market. Unlike before the crisis, these spreads cannot be expected to narrow perceptibly again anytime soon in the current environment. In other words, the spread differentiation, a reflection of the unique Pfandbrief quality from which our member banks benefit, is here to stay,” says vdp Chief Executive Jens Tolckmitt.

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Gisela Keller

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