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Commerzbank lifts loan provisions as economy worsens

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Commerzbank warned its 2019 profit target was “significantly more ambitious” after the lender boosted risk provisions for non-performing loans and said it was facing “worsening” economic conditions.

Germany’s second-largest listed lender, which was in failed merger talks with larger rival Deutsche Bank earlier this year, previously told investors that it expected a “slight year-on-year increase” in net profit, which in 2018 stood at €865m. Analysts on average were already expecting a 0.4 per cent decrease prior to Wednesday’s release.

Shares in Commerzbank have fallen 35 per cent over the past 12 months.

Commerzbank’s provisions for loan losses more than doubled over the second quarter to €178m owing to “single cases” of loans turning sour, the bank said, without providing additional details.

Analysts in the past have warned that Commerzbank might be hit harder than rivals from non-performing loans in an economic downturn, as it had aggressively sought to expand its lending to companies.

On Wednesday, the lender stressed that the overall quality of its lending book was good, with just 0.8 per cent of loans being non-performing in the first half, compared with 0.9 per cent a year earlier. It also said that it was on track for meeting its previous guidance of €550m risk provisions for the full year, as the tally after six months stands at half that value.

The lender’s second-quarter profits were also hit by an adverse €142m swing in profits caused by the revaluation of assets held by its corporate client units. This was caused by legacy portfolios as well as hedging and portfolio management activities.

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Operating profit dropped 26 per cent in the second quarter to €298m, Commerzbank said. Commerzbank’s common tier-one equity ratio — a key indicator of balance sheet strength — in the second quarter stood at 12.9 per cent of risk-weighted assets, 20 basis points above both analyst expectations and the first quarter of 2019.

The lender’s overall revenue in the second quarter fell by 2.2 per cent to €2.2bn and was slightly higher than expected by analysts. Operating expenses came down by 3.4 per cent to €1.6bn, in line with expectations.

Via Financial Times

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