DLL Reports 2% Portfolio Increase, 5% NBV Decrease in H1/2020

DLL reported interim results for the first half of 2020. Despite challenging external conditions, the company delivered portfolio and income growth during the first six months of the year, but net profits were heavily diluted by growing risk costs attributable to the COVID-19 pandemic.

The company’s portfolio balance increased by more than 2% compared with the prior year’s interim results and totaled €35.4 billion ($39.7 billion). During the first half of 2020, new business volume was €12.4 billion ($13.6 billion), representing a 5% drop from the prior year, which can be attributed to a reduced level of demand linked to the COVID-19 pandemic.

Excluding the effect of currency movements, the company recorded a net profit of €52 million ($58 million) in the first six months of 2020, a drop of 71% from the prior year. This result can be directly linked to higher risk impairments, which registered growth due to the negative impact of the COVID-19 pandemic. The underlying performance of the portfolio continued to trend positively, with net interest income of €625 million ($689 million), which represented more than 8% growth compared with the prior year.

“I am very proud of the hard work and dedication exhibited by our global workforce during these unprecedented times,” Bill Stephenson, CEO and chairman of the executive board for DLL, said. “Over the past months, we have clearly demonstrated the ability to operate our business on a 100% remote basis in more than 30 countries, while managing the well-being of our employees and supporting our customers during their time of need. Despite the impact of the pandemic on our risk costs, the underlying performance of our business model remained both positive and strong.”

COVID-19’s Impact

DLL reported growth of impairment charges linked to the COVID-19 pandemic. During this period, impairments more than tripled to €279 million ($329.82 million) from €86 million in 2019, representing 155 (2019: 51) basis points of the average portfolio, which is above DLL’s long-term average of 56 basis points.

“The economic hardships brought on by the pandemic limited the ability of some customers to service their debt,” Marc Dierckx, CFO and member of the executive board for DLL, said. “As a result, we saw elevated levels of delinquency and a growing number of customer requests to restructure contracts and payment terms.”

DLL processed more than 80,000 requests to restructure contract payment terms during the first half of the year. Of further note, a driver of the increased impairments were IFRS-9 Stage 1 and Stage 2 impairments, which are influenced by the macro-economic outlooks in the markets where DLL operates and by indices such as unemployment. IFRS-9 Stage 1 and Stage 2 impairments — which were €177 million ($209.24 million) compared with €20 million ($23.64 million) in 2019 — represent 63% of total impairments.

“Overall, our portfolio continued to grow, albeit at a slower pace due to reduced demand and softer commercial volumes,” Dierckx said. “More importantly, and despite the growth in delinquency and impairments brought on by the COVID-19 pandemic, we are comfortable with the overall quality of the portfolio and the long-term outlook on performance.”

“Our business model and strategy were both tested and validated during the last global financial crisis, and that is happening again with COVID-19,” Stephenson said. “We will continue to learn from this experience and take further steps to ensure DLL emerges from the pandemic as an even stronger company. Now more than ever, the primary theme of our strategy, ‘Partnering for a Better World,’ takes on a new and significant meaning. DLL continues to stand by our partnership promise and remains committed to the industry sectors that we serve as well as to our customers and the communities where we operate.”

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