German banking giant Commerzbank saw its best net result in more than 10 years, as its customer business continued to see robust performance. The current high interest rate environment also contributed significantly to these figures.
Operating profit for the first quarter of the year surged to €1.08 billion, up from €875 million for the same period last year, while net profit reached €747 million, up from €580 million. Total revenue came in at €2.7 billion up from €2.6 billion on last year.
Net interest income rose to €2.1 billion from €1.9 billion on Q1 of last year. Net commission income was relatively unchanged on last year at €920 million, up from €915 million.
Costs over the same period fell, down to €1.6 billion from 2023's €1.7 billion.
Commerzbank raised its net interest income outlook for the rest of the year to approximately €8.1 billion, with a 4% growth target for net commission.
Usually, when central banks hike interest rates, banks benefit by being able to charge their consumers higher interest rates on their loans and mortgages. They also have the potential to earn more by investing their own capital at higher rates.
Although this also means that they have to pay savers more lucrative rates, the increase is usually a small amount compared with the amount earned on mortgages and their own investments.
The ECB's potential summer interest rate cuts could dampen Commerzbank's earnings
Commerzbank CEO Manfred Knof said in a statement: "We deliver on our promises. We got off to a very good start this year. The strong customer business and the excellent result in the first quarter support our goal of increasing our profit in 2024.
"We are continuing to make good progress in implementing our strategic plan until 2027. Particularly in terms of revenue, it's becoming increasingly clear that our customer-centric business model is bearing fruit even in a challenging economic environment.
"In this regard, the most recent acquisitions in asset management and in the payment transaction business will start to contribute to commission income over the course of the year."
Back in November 2023, Commerzbank also announced that it would be almost tripling its shareholder payouts to €1 billion, as the bank continued to see bumper profits.
However, things may start to change, if the European Central Bank (ECB) actually goes ahead with its interest rate cuts this summer, as several analysts expect. This is due to inflation in the eurozone having significantly improved in the last several months and the ECB being keen to avoid bringing the EU to the brink of a recession through excessively stringent and lengthy monetary tightening.
Although the bank has taken a "data-centric" and more cautious approach with regards to inflation so far, insisting on more conclusive proof that inflation is coming under control, there have been increasing signs of this stance softening lately.
If so, interest rates may come down a little, which could in turn, impact Commerzbank's profits and interest income.
