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Good start in 2008: Double-digit growth in special loans and in operating result

7 May 2008

  • Q1 2008: Special loans granted increase by 46%, higher margins generated from issue business, operating result up 17% from the prior year (German Commercial Code, HGB)
  • Fiscal year 2007: Promotional lending volume increases by 6.5% to € 59.1 billion, net interest income and operating result (before valuation adjustments) up from the prior year (under both HGB and IFRS), IFRS measurement adjustments represent hidden reserves, no subprime exposure, cost-income ratio amounts to 16.3%.

Dr. Marcus Dahmen, spokesman of the Board of Management of Landwirtschaftliche Rentenbank, Frankfurt/Main, Germany, is very satisfied with the business development in the current fiscal year 2008, as stated at the press conference for the presentation of financial results of the German promotional bank for agriculture and rural areas. "The development of both promotional lending volume and operating result was tremendous in the first quarter of 2008," says Marcus Dahmen. Until the end of March, new promotional lending was concluded in an amount of € 5.6 billion (2007: € 3.6 billion), which represents an increase of approx. 50% compared to the first quarter of the prior year. Growth was fueled by standard promotional loans and securitized lending as well as by special loans granted at particularly low interest rates for specific promotional purposes and assistance measures. In the first three months, the volume of special loans newly committed was € 908 million (2007: € 621 million). The issue business and the financial performance also developed positively during the first quarter, according to Dahmen: "We have an excellent access to funds from the capital markets. By the end of March, the issue volume already had reached € 4.8 billion (2007: € 5.4 billion), while the total funding requirement for the year 2008 in the medium and long-term issue business (term of more than 2 years) is expected to amount to € 11 billion. The funding spread continued to increase compared to the prior year. The operating result as reported in our financial statements in accordance with the German Commercial Code (HGB) grew by 17% to € 60.6 million (2007: € 51.8 million) in the first three quarters, primarily due to the favorable refinancing conditions. As such, our strategy, which is based on sustainability, proves its value especially in times of a crisis." According to statements of the Board of Management, the bank is not exposed to the subprime market and is not suffering from payment defaults in the lending business or with respect to individual securities. The turmoil caused by the crisis on the financial markets, however, resulted in temporary measurement corrections in the IFRS balance sheet. "We expect to reverse these adjustments no later than at the maturity date, with a positive impact on earnings," says Marcus Dahmen. Therefore, he takes a positive stance with respect to the financial performance in the remainder of the year: "We are convinced that we will be able to maintain the very good results already achieved in the fiscal year 2007 in terms of both financial performance and promotional activities."

Net profit 2007: € 10.5 million to be used for the promotion of agriculture

The promotional bank for agriculture and rural areas generated an operating result (as reported in the individual HGB financial statements, before valuation adjustments) of € 201.2 million (2006: € 185.2 million) in the fiscal year 2007. Due to the improved financial performance and the only moderate increase of administrative expenses to € 39.1 million (2006: € 38.5 million), the cost-income ratio decreased to 16.3% (2006: 17.2%). Net income for the year, as reported in the HGB income statement for the fiscal year 2007, amounted to € 42.0 million (2006: € 41.0 million). Group's net income for the year as reported in accordance with IFRS amounted to € 51.0 million (2006: € 174.4 million), thus also ending up in positive territory, although the result from fair value measurement and from hedge accounting for the fiscal year 2007 includes a temporary measurement loss of € 94.4 million for the Group. After deducting the transfers to retained earnings totaling € 31.5 million (2006: € 30.8 million), net profit as reported in the individual HGB financial statements amounts to € 10.5 million (2006: € 10.3 million). This amount will be used to promote agriculture protecting the general public interest; one half each will be transferred to the Special Purpose Fund (Zweckvermögen) and the other half to the Promotional Fund (Förderungsfonds). The core activities of the Promotional Fund in the fiscal year 2007 were benefits for agriculture-related research projects as well as for advanced training measures for people employed in the agricultural sector.

Promotional lending volume 2007 up 6.5% against the prior year

Total assets (HGB) grew by 7.6% (2006: 7.1%) to € 88.8 billion (2006: € 82.5 billion) in 2007. The portfolio of medium and long-term promotional loans increased by 3.9% (2006: 5.3%) compared to the prior year and amounted to € 37.4 billion (2006: € 36.0 billion) at year-end. Loans belonging to the special loan programs continued to generate an above-average growth of 11.3% (2006: 14.2%) to € 13.3 billion (2006: € 11.9 billion). Accordingly, the share of these loans in the total lending volume in the medium and long-term segment increased to 35.5% (2006: 33.1%). These loans are offered for specific promotional purposes and assistance measures at very favorable interest rates. The securities portfolio also made a positive contribution to growth. Due to the new business for securitized lending, the carrying amount of this balance sheet item increased by 18.8% (2006: 7.9%) to € 25.9 billion (2006: € 21.8 billion). The medium and long-term promotional lending volume as reported in the balance sheet (HGB) totaled € 59.1 billion, representing an increase of 6.5% compared to the prior year.

Strong issuance activity: securitized liabilities reach € 70.0 billion

Due to the strong issuance activity in the fiscal year 2007, securitized liabilities carried on the liability side of the balance sheet grew by 6.9% (2006: 14.1%) to € 70.0 billion (2006: € 65.5 billion). Medium and long-term external funds totaled € 65.5 billion (2006: € 67.5 billion) as of the balance sheet date.
In the medium and long-term maturity range, the bank raised funds from capital markets in the amount of € 11.2 billion (2006: € 9.9 billion), of which € 7.9 billion (2006: € 5.5 billion) referred to the Euro Medium Term Note (EMTN) program and € 2.0 billion (2006: € 3.0 billion) to global bonds registered with the U.S. Securities and Exchange Commission (SEC). In the short-term range, funds were primarily raised through the Euro Commercial Paper (ECP) program. The ECP program's outstanding volume doubled on average for the year to almost € 9 billion (2006: € 4.4 billion). The U.S. dollar continued to be the most important issue currency with a share of 34.0% in total funds raised, although the share of the euro increased significantly to 30.7%. Central banks accounted for 48% of the issue volume. Due to the equity relief as a result of the "zero risk weight" applicable since January 1, 2007, the share of commercial banks in the issue volume climbed to 22% (2006: 13%).

Total capital increases to € 2.9 billion (2006: € 2.8 billion)

Total capital as reported in the HGB balance sheet totaled € 2.9 billion (2006: € 2.8 billion), of which € 1.0 billion (2006: € 1.1 billion) are subordinated liabilities. The fund covering general banking risks was increased by transferring € 76.0 million from the operating result and now amounts to € 1.1 billion (2006: € 1.0 billion). Retained earnings grew to € 687.0 million (2006: € 655.5 million) due to the transfer of € 31.5 million from net income for the year. Both core capital ratio (2007: 10.6%; 2006: 10.7%) and total capital ratio (2007: 16.5%; 2006: 16.8%) continue to be significantly above the regulatory minimum requirements of 4% and 8%, respectively.

Landwirtschaftliche Rentenbank is Germany's promotional bank for agriculture and rural areas. Its statutory purpose is to provide assistance for agricultural projects by granting loans at preferential interest rates which are principally channeled through other banks. Its statutory purpose as a promotional bank also determines how its profits are appropriated. Landwirtschaftliche Rentenbank is a public-sector agency whose capital base has been paid up by the German agricultural and forestry sectors. It raises most of its funding in the international capital markets and is one of the few banks in Germany with triple-A credit ratings.

Forward-Looking Statements
This press release contains forward-looking statements that are based on current expectations, estimates, forecasts and projections of Rentenbank's management and currently available information. Such statements include, in particular, statements about our plans, strategies and prospects. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", variations of such words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Except as required by law, Rentenbank does not have any intention or obligation to update publicly any forward-looking statements after they are made, whether as a result of new information, future events or otherwise.

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