Germany's Commerzbank is on track to achieve the record profits it is aiming for this year after seeing its best quarterly results since the start of 2011.
"We have started the new year with a lot of momentum. The strong customer business and the very good result in the first quarter confirm our goal of increasing profits in 2024," said chief executive Manfred Knof on Wednesday.
The fact that interest rates are not falling as quickly as expected a few months ago plays into the hands of Commerzbank with its focus on small- and medium-sized entreprises (SMEs) and private customers.
However, the legal disputes over Swiss franc loans in Poland remain a burden.
In the first three months of the year, earnings before taxes of just under €1.1 billion ($1.2 billion) exceeded the level seen in the same period last year by almost a quarter, the DAX-listed group announced in Frankfurt.
The bottom line was a profit of €747 million, around 29% more than a year ago. This also exceeded analysts' expectations. The last time Commerzbank performed better in a quarter was in the first quarter of 2011, when it reported a profit of €985 million.
At just over €2.1 billion, net interest income in the first quarter was close to the record figure for the third quarter of 2023 (€2.166 billion).
The executive board raised its forecast for net interest income for the year as a whole by around €200 million to around €8.1 billion.
The figure for 2023 had increased by almost 30% to around €8.4 billion.
Since the European Central Bank (ECB) ended the phase of zero and negative interest rates in July 2022 and subsequently raised key interest rates 10 times, banks and savings banks no longer have to pay interest when they park money with the central bank, but instead earn interest on it.
Commerzbank had to absorb further charges in the first three months of the year at its Polish subsidiary mBank: Further provisions totalling €318 million were made there for legal risks in connection with foreign currency loans. For the second quarter, the management currently expects to have to set aside a further €80 million.
Commerzbank has been struggling with problems in Poland for years. The main reason for this are Swiss franc loans that many Poles took out years ago for construction financing. When the Polish zloty depreciated against the franc, the burden on borrowers increased.
As a result, many took legal action against Polish financial institutions for possibly unlawful clauses. Commerzbank is attempting to minimize legal risks in this area by reaching out-of-court settlements.
In each of the past two years, Commerzbank's consolidated result was depressed by charges totalling more than €1 billion in Poland. Nevertheless, the bank achieved a record profit of €2.2 billion in 2023, boosted by the turnaround in interest rates. The board of managing directors aims to "significantly" exceed this figure in the current year, according to the annual report for 2023.
However, the outlook depends "on the development of the charges on mBank's Swiss franc loans," Commerzbank said on Wednesday.
The bank's shareholders should also benefit from the targeted increase in profits for the year as a whole: The management board intends to distribute at least 70% of the profit to shareholders in the form of dividends and share buybacks.
Commerzbank's largest shareholder since it was rescued with billions in taxpayers' money during the 2008/2009 financial crisis is the German government.