Commerzbank aims to significantly increase net profit by 2027
More business with wealthy private clients and additional digital offerings for corporate clients should bring Commerzbank higher profits in the coming years. Following another successful quarter, the Board of Managing Directors led by Group CEO Manfred Knof is now targeting a net profit of around 2.2 billion euros for 2023, as the DAX-listed company announced in Frankfurt on Wednesday. Previously, the management had only forecast a significant increase. Net profit is expected to increase to around 3.4 billion euros by 2027.
Higher net commission income in particular is expected to contribute to this. According to the current forecast, net interest income, which has risen sharply recently, will increase to more than 8.1 billion euros in the current year, but is only likely to grow moderately in the medium term according to management estimates. After years of zero and negative interest rates, the European Central Bank (ECB) has raised interest rates in the eurozone ten times since July 2022 in the fight against high inflation. Financial institutions now receive interest again when they park money with the ECB. Banks and savings banks also earn money from higher interest rates on loans, for example.
As with other financial institutions, the rise in interest rates is also boosting business at Commerzbank. In the third quarter of the current year, the bank increased its bottom-line profit to 684 million euros. A year earlier, the result had slumped to 195 million euros.
Less money for potential loan defaults
In the first nine months as a whole, the bank earned a good 1.8 billion euros, almost twice as much as a year earlier. Net interest income increased by almost 39 percent to a good 6.2 billion euros in the period from January to September inclusive. The bank also benefited from the fact that it had to set aside less money for potential loan defaults. For the year as a whole, the Board of Managing Directors only expects risk provisions of less than 700 million euros.
Commerzbank has been on an austerity course in recent years: thousands of jobs have been cut and the number of branches in Germany has been reduced from 1,000 to 400 - but this is to remain the case for the time being. "The transformation work of recent years is increasingly paying off. In addition to the interest rate environment, we are benefiting from a low risk result and continued cost discipline," said CFO Bettina Orlopp. The fact that the bank has already earned more after nine months than in 2022 as a whole is "a strong basis for significantly increasing our dividend as planned".
For the financial years 2022 to 2024, Commerzbank intends to distribute a total of three billion euros to its shareholders via dividends and share buybacks, as the Bank announced at the end of September. The aim is to distribute more than half of the profit - after deducting interest payments for certain bonds and minority interests - in the years 2025 to 2027. After three zero dividends, a dividend of 20 cents per share was paid again for the first time in the 2022 financial year.
One billion euros in charges due to mBank
In 2022 as a whole, the bank, whose largest shareholder is the German state, generated a good 1.4 billion euros in net profit, the highest level since 2007. However, Commerzbank's profit could have been considerably higher in 2022 had it not been for the more than one billion euros in charges from the Polish subsidiary mBank, including in connection with Swiss franc loans. By the end of September of the current year, the charges at mBank amounted to 754 million euros.
Commerzbank intends to increase its efficiency "in particular through simple digital processes", as the bank announced. "On this basis, the cost/income ratio is also to be improved." In 2027, the bank wants to spend just 55 cents to make one euro in profit. In the first nine months of 2023, the cost-income ratio amounted to 60 percent.
Group CEO Knof promised investors and shareholders: "We will increase our earnings base, further improve the cost/income ratio and increase our return on equity." For 2027, the Management Board is aiming for a return on tangible equity of more than 11%. In 2022, it was 4.9%, and the Management Board expects 7.5% for the current year. This figure puts profit in relation to the equity capital employed and thus shows how efficiently a company has used this money.
The quarterly figures for Commerzbank showed a substantial increase in net profit, with the bank announcing a target of around 2.2 billion euros for 2023. This ambitious goal is a significant increase from the previous forecast and is attributed in part to higher net commission income and less money set aside for potential loan defaults. Furthermore, as confirmed by CFO Bettina Orlopp, this strong performance provides a solid foundation for Commerzbank to increase its dividend, following three consecutive zero dividend years. Additionally, Commerzbank, like other financial institutions, has seen its profits boosted by the rise in interest rates, as reflected in its third-quarter earnings of 684 million euros. (Banks, Quarterly figures, Commerzbank)
Source: www.dpa.com
