2023-08-04 15:49:02
Commerzbank earned more than 1 billion euros in the first six months of the financial year. In the quarter between April and June alone, consolidated earnings rose by around 20 percent to EUR 565 million. As a result, Germany’s second-largest commercial bank is more optimistic for the year as a whole – especially with regard to net interest income.
Because the main driver of the result was the higher interest rate environment. Net interest income in the June quarter rose by 44 percent compared to the same period last year and reached 2.13 billion euros. It is true that Commerzbank “loses” EUR 30 million in the current year and EUR 100 million in the coming year as a result of the European Central Bank’s decision not to pay interest on the minimum reserve, as CFO Bettina Orlopp calculated in a conference call.
Significantly more interest income
But even taking the ECB decision into account, Orlopp is assuming net interest income of 7.8 billion euros for the current year. That is EUR 800 million more than initially forecast, most recently there was talk of EUR 7.3 billion for net interest income.
The calculation is based on a few variables. Commerzbank assumes that the ECB deposit rate will be 3.75 percent for the rest of the year. The calculation also assumes that more interest will be passed on to customers in the second half of the year. The so-called deposit beta, i.e. the average proportion of interest that is passed on to customers – both on interest-bearing deposits and interest-free deposits, for example on current accounts – is expected to rise to 35 percent in the current third quarter and in the final quarter. In the first two quarters of the year, the deposit beta averaged 20 percent.
It is true that Orlopp expects slightly lower net interest income in the coming year than in the current year. However, Commerzbank boss Manfred Knof does not think it is likely that the wave of interest rates that the bank is currently riding will break off so quickly. “We don’t expect interest rates in Europe to fall that quickly,” he said on the conference call.
Legal risks at M-Bank in Poland
The legal risks at the Polish subsidiary M-Bank can also be processed well for Commerzbank. According to Knof, 75 percent of the existing loan volume is now secured. Of course, he did not want to guarantee that further provisions for legal disputes about loans granted in Swiss francs to Polish property owners would have to be made.
Commerzbank also feels comfortable with its loan portfolio. She attributes the fact that the risk result of EUR 208 million was almost twice as high as in the same period of the previous year to a one-off effect from the adjustment of internal credit risk models. At the same time, she emphasized the overall high credit quality with a problem loan rate of only 1.1 percent. In addition, the number of loan defaults is still at a moderate level.
New strategy and share buyback
Knof announced that it would publish a fresh strategy for the following years with the results for the third quarter at the beginning of November. As early as Friday, he was confident that Commerzbank would earn its cost of capital in the future, “with a double-digit return on equity, that should be possible,” said Knof. In the first half of the year, the return on equity was 8.1 percent, but is expected to be lower for the year as a whole.
The common equity tier 1 ratio (CET-1) was 14.4 percent as of June 30, 0.2 percentage points more than in the previous year. It already contains the accrual for the planned distribution of half of the consolidated profit for the current financial year.
A comment by Archibald Preuschat Published/Updated: , Recommendations: 6 Hanno Mußler Published/Updated: , Recommendations: 5 Christian Siedenbiedel Published/Updated: , Recommendations: 6
One thing is certain: Commerzbank will probably start another share buyback program this year. To the disappointment of the analysts, the management kept a low profile about the exact amount. Finally, the ECB and the finance agency of the Federal Republic, the largest single shareholder, have to give their approval. However, according to a hint from Orlopps, it could be around three times as large as the 122 million euros settled in June.
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