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Our strategy

Interview with Hermann J. Merkens

Mr Merkens, how would you describe Aareal Bank’s market environment?

Aareal Bank is still facing a challenging and demanding environment, primarily characterised by four factors:

First: strong, intense competition that places margins under pressure in pretty much the entire sector and in all relevant countries and markets;

Second: continuously intensifying regulatory requirements, making it difficult for banks to generate reasonable returns on equity;

Third: historically low interest rates, significantly burdening profitability in the deposit-taking business;

And fourth: rapid technological change that we, as nearly all other companies, are confronted with.

In addition, change is taking place at an ever-faster rate, meaning that something which is still accepted on a broad level today will already be under heavy scrutiny tomorrow.

How does Aareal Bank react strategically to this environment?

When we created our ”Aareal 2020" programme for the future three years ago, we already paved the way for continued sustainable growth at our Group. Since then, we have taken comprehensive measures to increase efficiency and optimise structures and processes, significantly boosted the development of the IT landscape, and initiated a large number of initiatives to refine the business models in both segments. In this context, we have also set a focus on the cultural transformation, in order to further develop the way we think and act, as well as on the general attitude and stance with which we conduct our business. We can already see clear evidence of the programme's success.

What is the strategic alignment of the Structured Property Financing segment?

We will continue to focus on the most attractive markets, and reduce the non-strategic portfolios in the Structured Property Financing segment. We will also expand the existing exit channels and open up new ones – in other words, we will systematically broaden our options for acquiring new business without burdening our balance sheet. Furthermore, we will increase our efforts to explore new – and also digital – business opportunities along our value creation chain, regarding process optimisation as well as the development of digital business models in this segment.

And what strategic options do you see for the Consulting/Services segment?

In the Consulting/Services segment, we aim to continue expanding our promising digital solutions portfolio, to penetrate relevant ecosystems even more systematically, and to drive forward our expansion into neighbouring markets. In addition, we will develop new offers for the property industry and for a direct interaction of our clients with end-customers.

Intensifying existing cooperations with start-ups and expanding our own incubator activities are also two important pillars of our strategic agenda.

Why are you optimistic for Aareal Bank Group’s future?

I am convinced that we have established a very good starting position, enabling us to operate successfully in the next years. Firstly: we are more broadly and better positioned in both segments – also in terms of our alignment within them – than many other specialist finance providers. Secondly: we started the adjustment process, which was necessary due to impending changes on the market, very early on, with our ”Aareal 2020” programme for the future. Thirdly: thanks to our solid financial position and our robust operating business, we are acting from a position of strength. Fourthly: we can count on a strong, motivated, highly skilled team, with impressive commitment and an intense willingness to embrace change. All of this causes me to be very optimistic for Aareal Bank Group's future.

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