After an unexpectedly strong second quarter, Commerzbank is on course to achieve its full-year targets. The increased interest rates allowed the Frankfurt bank to cope with new burdens from the Polish subsidiary mBank. The bottom line is that Commerzbank earned 565 million euros, a fifth more than a year earlier, as announced on Friday.
CEO Manfred Knof continues to expect consolidated profit for the year as a whole to be well above the previous year’s figure of 1.4 billion euros. In the first half of the year alone, the bank earned almost 1.15 billion euros. “We are consistently implementing our strategy and, thanks to strong earnings in customer business, have significantly increased profits – despite renewed high special charges for Swiss franc loans in Poland,” said Knof. “We are therefore fully on course to achieve our goals for 2023 and 2024.”
In the first half of the year, the institute achieved a return on equity of 8.1 percent – and thus more than the 7 percent that it had set itself as a medium-term goal. The Management Board intends to present the new strategy program for the period from 2025 onwards when the next quarterly figures are published on November 8th. The goal should then be a return of more than 10 percent, said CFO Bettina Orlopp.
1.7 billion euros in provisions
The controversial loan agreements of the Polish subsidiary in Swiss francs cost Commerzbank dearly again in the second quarter. After a ruling by the European Court of Justice, which may result in compensation from Polish bank customers, the institute set aside a further 347 million euros. The Group’s provisions for these loans now total 1.7 billion euros. According to Knof, 75 percent of the existing loan volume is secured.
The Polish subsidiary granted real estate loans in Swiss francs at significantly lower interest rates than loans in the local currency, the zloty. The rise in the Swiss franc then caused borrowers difficulties in repaying. Commerzbank tries to settle the disputes through agreements with affected customers. So far, more than 8,000 comparisons have been made.
Higher interest income and savings program
Commerzbank’s confidence is fueled by significantly higher interest income. In the second quarter, net interest income jumped 44 percent year-on-year to 2.1 billion euros. For the year as a whole, the Executive Board is now anticipating net interest income of at least EUR 7.8 billion.
Net interest income – the difference between what institutes collect for loans, for example, and what they pay their customers as interest on savings, for example – has traditionally been an important source of income for banks and savings banks in Germany.
The income – i.e. the total income – of the institute, which has been partially nationalized since the financial crisis, increased by 8.7 percent to a good 2.6 billion euros. Commerzbank now sees a recovery in the construction financing business. “With slowly falling real estate prices and increasing acceptance of higher interest rates, the mortgage lending business has picked up again in recent months,” reported Knof. The volume of new business in June was higher than in the same month last year.
In addition to the rise in interest rates, the austerity measures of the past few years are also paying off with the gross reduction of up to 10,000 jobs. The number of branches in Germany was reduced from 1000 to 400. “Of course, the job cuts are still taking place a bit, but the program itself is complete and we are now looking ahead,” said Knof. At the end of June, the Institute employed 37,487 full-time staff, 25,004 of them in Germany.
In the second quarter, Commerzbank set aside EUR 208 million for possible loan defaults, almost twice as much as a year earlier. For the year as a whole, the institute expects a value of less than 800 million euros. Initially, the board of directors had assumed less than 900 million euros.
The shareholders should benefit from the good development. The institute is planning another share buyback program.
